Found this on the Nolo sitehttp://www.nolo.com/legal-encyclopedia/filing-your-taxes-whe...Rental property is owned by individuals when the owner or owners take title in their own names, not in the name of a business entity such as a partnership or limited liability company. Individuals file IRS Schedule E, Supplemental Income and Loss, to report their rental income and expenses. On this form you list all your expenses and income you received during the year from all your rental properties. If you earned a profit, you add this amount to your other income (such as salary from a job, interest income, or investment income) and report the total on IRS Form 1040. If you incurred a loss, you may be able to deduct it from your other income, but there are severe restrictions on such deductions. and Landlords who own their properties through business entities don’t use individual Schedule Es to report their rental income or losses. Instead, the partnership, limited partnership, LLC, or S corporation files IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation, to report the income and deductions from the property owned by the entity. This form is very similar to Schedule E. and LLCs with only one member are ordinarily treated like a sole proprietorship for tax purposes. The member reports profits, losses, and deductions on Schedule E. An LLC with two or more members is treated like a partnership for tax purposes, except in the unusual situation where the owners choose to have it treated like a C or S corporation.
Puddinhead,While you do need real estate to run a vacation rental, the IRS seems to be increasingly auditing these businesses and insisting that they be declared on schedule C not E, requiring payment of SS and other taxes as well. Much of the difference in requirements seems to hinge on how long the property is rented. If the average rental, number of days rented/number of distinct visits, is less than 7 days, and you offer things like linens or other goods/services, then they lean towards schedule C. I've gotten this from those who have been audited, rather than something I can link.As for a tax book, I like this one: http://boards.fool.com/great-tax-book-29179737.aspx Don't remember their touching the need for schedule C, but great on telling you how to document expenses. If you don't do it the right way, they will be disallowed.IP
Sweet on the book, that one had looked so good I took a flier on it right after I posted(good Amazon reviews) - glad for another good review.Yep, C vs E - seems like lots open for interpretation by the IRS. I know you are not an expert, but let's take a "typical" beach rental run by a management company. They take 30% of gross and they hire an outside cleaning company that also supplies fresh linens and towels. Also, most of the rental in June, July, Aug are 7 days, but some are 6 and at other times of the year you get 6 or 5, drawing average stay to 6.5 days. It sounds all like that pushes you on to schedule C.So then you own social security tax on yourself for your net income? Is it on net income after management and cleaning fees or net after all expenses, like depreciation, cable bill, electric, etc?Thanks for any opinion.
I know you are not an expert, but let's take a "typical" beach rental run by a management company.It is an understatement to say I am not an expert. I haven't even really taken the plunge yet, other than to have bought a vacation home and look into the industry thoroughly. We had actually decided not to put our house on the market, since we will be moving there in a couple of years, but are in negotiations to buy another property at this time. If we get that, then we will put both on the market. There is some indication from the people I know who have been through the audits that the IRS would look more kindly on a schedule E filing if you have more than one property. It will work for us no matter what schedule we have to file, though.I don't know about properties subject to a management co. Don't know how that affects taxes. We would self manage. Our fall back position on these properties if we decide that running vacation rentals is not for us is to use it as our home in retirement or as a long term rental. They have to be a good investment under both conditions for us to buy. Any time we factored in management fees, the property failed to be a good investment. YMMV.Something to consider when looking at your days rented average is an off season multi month rental to retirees. Depending on where you are located, this could be an option. In fact, it is something we are considering doing personally, renting out a place in SC or GA for the winter. Our mountain house will be too cold for us to remain active, and I've always preferred walking on isolated beaches even in cold weather to roasting on a crowded beach in the summer.So then you owe social security tax on yourself for your net income? Is it on net income after management and cleaning fees or net after all expenses, like depreciation, cable bill, electric, etc?My understanding if you have to file schedule C is that you would then owe social security, medicare, etc after all expenses, including depreciation. Even a lot of so called pros are confused on the C vs E issue.IP
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