Short Term Rental in Georgia- Taxes

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Short Term Rental in Georgia- Taxes

Member since 2018 · 2 posts · 0 votes

For short term rentals, do you think it's best to go with Schedule c or Schedule e when filing your taxes? I can't seem to get a clear guideline between these two. For the EY guidebook, it appears that C is when you provide meals and daily housekeeping, and that E is for if you do not provide all of these.

Is it best to leave that question for the CPA?

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Brandon Hall

CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes

@Katie Thomas thanks for the tag - I haven't updated that podcast episode but I should.

The “7-day rule” that I referred to is found in Temp. Reg. §1.469-1T(e)(3)(ii)(A). It states that an activity is not a rental activity if the average period of use of the property is 7 days or less.

There is a second rule that says states that an activity is not a rental activity if the average period of customer use of the property is 30 days or less and significant services are provided. (Temp Reg. §1.469-1T(e)(3)(ii)(B))

If the rental is not a rental activity, it should not be reported on Sch E. Instead, it should be reported on Sch C. But just because a rental activity is deemed not to be a rental activity for purposes of the passive loss rules doesn’t necessarily mean that a profit from such activity is subject to self-employment tax due to the exclusion of rental income from SE tax (IRC §1402(a)(1)).

The question would then become whether the property owner is considered to be a real estate dealer or provides substantial services. If so, and your rental is deemed not to be a rental activity, you may have SE income.

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Paul Sandhu
Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
8y
Schedule E. The keyword is "Daily Service" which is something you do not provide.
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Yuting Yang
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Member since 2018 · 2 posts · 0 votes
8y
Originally posted by @Paul Sandhu:

Schedule E. The keyword is "Daily Service" which is something you do not provide.
Thanks for replying. That's what I thought as well.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
8y
@Yuting Yang

You also have to consider the average stay of your guests.
If the average stay is 7 days or below - you may be required to file form schedule C instead of Schedule E.
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Luke CarlPro Member
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
8y
E.
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Katie Thomas
CPA · Member since 2018 · 9 posts · 6 votes
8y
@Brandon Hall , can you please comment on this? I remember reading an article you wrote which indicated under 7 days and no substantial services then it'll still be schedule C but not subject to SE tax. However, on one of your podcasts, you mentioned below 7 days and you'll have to pay SE no matter what (even if no substantial services are provided). Can you please clarify as this is your subject of expertise? Thank you so much!
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Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
8y
@Katie Thomas thanks for the tag - I haven't updated that podcast episode but I should.
The “7-day rule” that I referred to is found in Temp. Reg. §1.469-1T(e)(3)(ii)(A). It states that an activity is not a rental activity if the average period of use of the property is 7 days or less.
There is a second rule that says states that an activity is not a rental activity if the average period of customer use of the property is 30 days or less and significant services are provided. (Temp Reg. §1.469-1T(e)(3)(ii)(B))
If the rental is not a rental activity, it should not be reported on Sch E. Instead, it should be reported on Sch C. But just because a rental activity is deemed not to be a rental activity for purposes of the passive loss rules doesn’t necessarily mean that a profit from such activity is subject to self-employment tax due to the exclusion of rental income from SE tax (IRC §1402(a)(1)).
The question would then become whether the property owner is considered to be a real estate dealer or provides substantial services. If so, and your rental is deemed not to be a rental activity, you may have SE income.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
8y
@Brandon Hall nailed it.
Ultimately it comes down to qualifying as a transient property classification.
Most air Bnb's require schedule C reporting. They're not a passive rental. They're treated more like a hotel.
HOWEVER
If you're not providing substantial day-to-day services, then there shouldn't be SE tax on the income.
(Think providing daily breakfast, daily sheet turn down, ect)
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Katie Thomas
CPA · Member since 2018 · 9 posts · 6 votes
8y
@Brandon Hall and @Natalie Kolodij (my two biggest inspirations!), thank you both so much. I really appreciate your help. All of my confusion is now gone. :)
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