16 Jan Airbnb Taxes: Schedule C Vs Schedule E
Disclaimer: I am not a tax professional! I’ve been asked by my readers to write a quick guide on taxes.
In this post, my goal is to help you determine the key differences between “passive” or “active” rental income. Please go see a CPA or a tax professional for more information.
Most short-term rental owners or Airbnb taxpayers choose to use Schedule E. Schedule E is used to report “passive” income, an income where you receive money, but not work for or earn them. Schedule C is used to report “active” self-employment business income (cooking, cleaning service…etc.)
Passive Vs. Active Income (Schedule E Vs. Schedule C)
Passive = Schedule E
Active = Schedule C
One of the classifications the IRS makes when it looks at how you earned your income is “passive” or “active”. How do you determine if your taxes are passive or active?
Active income implies you materially participated in the production of your income. Passive income implies you didn’t materially participate in the production of your income.
Once you’ve determined which type of income you have, then you can decide whether to file schedule C or Schedule E.
Here’s a useful flow diagram:
Below is a picture that will help you determine what “substantial services” mean:
Using Schedule E
Landlords should use Schedule E if they rent rooms, apartments or entire buildings and provide only “basic services” to their tenants. Basic services include things such as utilities, trash collection, and maintenance.
On Schedule E, you report your rental income as well as your expenses associated with that income. You can report up to three separate properties on each Schedule E, and file as many copies of the schedule as you need to report all properties.
Using Schedule C
Landlords report rental income on Schedule C — “Profit or Loss From Business” — if they provide more than basic services to tenants. Housekeeping, linen service, maid service, and meals are examples of substantial services that would require a landlord to use Schedule C.
In essence, once you start providing substantial services, you’re not just renting property; you’re running a hotel or boarding house. Those count as businesses — thus the requirement for Schedule C. You must also use Schedule C if they rent the property as part of their business as a real estate dealer.
Other Useful Tools
2018 is a great year for additional tax benefits. I would definitely consult a CPA to maximize your deductions. However, I did find an insightful book that will teach you on maximizing your deductions and minimizing potential penalties. You can buy it from Amazon and here’s the link.
Interest in learning how to build your rental arbitrage empire? You can subscribe to my blog and learn tips and insights on my process of creating a profitable 6-figure passive income business using other people’s home. I write on the regular and offer free tips and insights.
MarcusPosted at 22:50h, 23 April
Hey Sam, I have an Airbnb And I’m deciding whether to file a business return or a personal return. I gave the LLC but have not yet filled. If filed personal, i would file Schedule E. Any input here?
Sam ZuoPosted at 10:13h, 21 June
I’m not a professional so I would recommend you to go and talk to a tax professional. But I can tell you what I did. I filed a Schedule C.
JPPosted at 17:13h, 08 June
“Disclaimer: I am not a tax professional!” This article should have ended there. No need to add to the quantity of bad tax advice online.
Sam ZuoPosted at 23:59h, 08 June
Agreed. People should really do their own research. And I hope you stopped reading after the disclaimer guess you didn’t.
Rose DuvuvueiPosted at 14:52h, 14 February
I only launder the sheets and sweep between guest oh, but never while they are here. The bathroom doesn’t take up too much time as they generally leave it pretty clean, and I leave cleaning supplies for them in the bathroom to do their own cleaning up if they want. Would this be considered passive?
Rose DuvuvueiPosted at 14:57h, 14 February
I forgot to mention, I also set up an LLC at the beginning
Norman L RosenblattPosted at 14:07h, 16 April
Rose, if the LLC is a single-member that has made no election to be taxed as a corporation or as an S Corp, then it is a disregarded entity. You still have limited-liability protection under state law, but the IRS ignores the LLC and all income and deductions of the LLC must be reported by the owner. In your case, you do not provide substantial services DURING the rented period, so you should file on Schedule E.
DeePosted at 17:41h, 18 December
Yes as long as it’s during the time it is not rented. . In other words you are not providing these services directly to the tenent as part of their stay as a hotel would. But that is not the only criteria of your rental activities that are used to determine how to file your income.
RosePosted at 17:36h, 26 February
I only had one person stay 15 days, 14 nights (everybody else is basically 2-4 days, I only clean between guests, and provide cleaning supplies in the bathroom, but I do clean between, so it seems it’s passive. So why did I get a 1099, like I have to file and pay taxes? Per your guide, I would not pay taxes. So, do I just ignore the INCORRECT 1099 they sent me? Maybe your article was before 2022 when they started doing 1099s….?????