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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Taxes: Schedule C or E Date: 8/8/2012 6:03 AM
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Whether to file your taxes for the vacation rental under schedule C or E has been discussed on the tax board and concluded widely in many places and tax books that it should be filed on schedule E. Recently, on another vacation rental board, I came across this experience"

I don't mean to muddy the waters here, but we just ended an ugly two year 2008 IRS audit and the findings were our taxes were done incorrectly by our CPA. The IRS stated we should be using Schedule C, not Schedule E for the overnight rental cabin.

We have to have 2009 and 2010 revised.

http://groups.yahoo.com/group/vacation_rentals/message/96418......

If anything interesting comes up on that thread, I will post it here, as you have to sign up for that Yahoo board. It's well worth watching. Vacation rentals as an industry are exploding in popularity. Perhaps the IRS ignored it for the most part, but now realize they left a good deal of money on the table, if only in social security taxes. I can't help but wonder if this ruling is a sign to come.

IP
cross posted on Vacation Rental Management board
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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116514 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/8/2012 6:05 AM
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With proper formatting this time:


Whether to file your taxes for the vacation rental under schedule C or E has been discussed on the tax board and concluded widely in many places and tax books that it should be filed on schedule E. Recently, on another vacation rental board, I came across this experience:

I don't mean to muddy the waters here, but we just ended an ugly two year 2008 IRS audit and the findings were our taxes were done incorrectly by our CPA. The IRS stated we should be using Schedule C, not Schedule E for the overnight rental cabin.

We have to have 2009 and 2010 revised.


http://groups.yahoo.com/group/vacation_rentals/message/96418.........

If anything interesting comes up on that thread, I will post it here, as you have to sign up for that Yahoo board. It's well worth watching. Vacation rentals as an industry are exploding in popularity. Perhaps the IRS ignored it for the most part, but now realize they left a good deal of money on the table, if only in social security taxes. I can't help but wonder if this ruling is a sign to come.

IP
cross posted on Vacation Rental Management board

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116515 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/8/2012 7:46 AM
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Without reading the post at the Yahoo group, I can only surmise what the issue is. However, the reference to "overnight rental cabin" (emphasis added) suggests that this rental is one where the owner provides "substantial services that are primarily for [the] tenant's convenience" as described in Pub. 527. This would be a Schedule C rental activity.

Ira

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116516 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/9/2012 6:58 AM
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Another post in the thread: I am in the midst of an audit for 2009 & 2010.
My average rental period is 7 night +
meaning I rented 2929 nights in 359 reservations or 8.15 nights/res

I have not received the IRS audit report yet, but per my accountant::
My average rental was greater than 7 nights...
So I am able to continue using Schedule E.


However, the reference to "overnight rental cabin" (emphasis added) suggests that this rental is one where the owner provides "substantial services that are primarily for [the] tenant's convenience" as described in Pub. 527.

Typically these types of places rent for a minimum of 2-3 days, or even a week. About the only "substantial services" that are included are cleaning, which gets contracted out to a third party typically, and even often billed separately. Many places offer linens, many do not. Yes, utilities are included, but IIRC, that does not constitute a service.

It's been an interesting thread to follow, in that some file schedule c and some e, though the Nolo Press book on taxes for the landlord seemed pretty confident that a vacation rental would be declared on schedule e. Indeed, on a previous thread here, which I can not find, the board was adamant that schedule e should be used, not c.

Seems to be a lot of uncertainty. If the guideline is an average rental of 7 days or more, that may dictate one week minimum rentals if I ever put our place on the vacation rental market.

IP

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116517 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/9/2012 9:36 AM
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If anything interesting comes up on that thread, I will post it here, as you have to sign up for that Yahoo board. It's well worth watching. Vacation rentals as an industry are exploding in popularity. Perhaps the IRS ignored it for the most part, but now realize they left a good deal of money on the table, if only in social security taxes. I can't help but wonder if this ruling is a sign to come.
--------------------------------------
Of course, Social Security taxes are only an issue if you make money at it. And if you're showing a profit on vacation rentals, you're probably doing something wrong. (Just about nobody else does.)

Bill

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116522 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/9/2012 4:06 PM
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And if you're showing a profit on vacation rentals, you're probably doing something wrong. (Just about nobody else does.)

Not the case on the board I linked. If you manage the property yourself, and choose well, it shouldn't be that hard to make money.

IP

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Author: RHinCT Big gold star, 5000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116523 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/9/2012 5:43 PM
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I'm guessing the nuance here is the difference between showing a profit and making a profit. 8-)

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116526 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/9/2012 7:44 PM
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I'm guessing the nuance here is the difference between showing a profit and making a profit. 8-)

It can be quite possible to do both. Even though you certainly don't rent for 52 weeks out of the year, though some people have managed to get quite close to full occupancy, one weeks vacation rent typically is around what you would get for one month rent as an unfurnished long term rental. Or more than one month's rent if in a very rural area.

For example, our place in rural VA would get about $500-600/ month as a long term rental, but furnished, including electric, cable, internet, phone, and kayaks, we expect to get about $1100/week. Granted, we might just rent for 15-20 weeks, but it takes only around 7 weeks rental to pay all our expenses other than the time I spend lining up renters. On top of that, we can take advantage of the unrented time, at Uncle Sam's expense as long as we do at least 4 hours work on the place every other day.

It took a long time for us to find a place that would be cash flow positive and have a positive return on equity. Unfortunately, it's also taking us a long time to get people to work on the place. No one seems to want to work anymore. But that's a thread for another board.

Money can be made quite nicely in this industry, even eliminating any possibility of appreciation from the calculation. Money can also be lost in a big way. The property you buy, the market you buy into, and how much you pay for the place pretty much dictates your success or lack thereof.

IP

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116528 of 121585
Subject: Re: Taxes: Schedule C or E Date: 8/10/2012 2:45 AM
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I'm guessing the nuance here is the difference between showing a profit and making a profit.

No, the difference is between having a positive cash flow and having a book profit, which isn't calculated from cash flow. The big factor is depreciation, which isn't a cash expense but does reduce your taxable profit.

Phil
Rule Your Retirement Home Fool

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