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.
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