Schedule E vs Schedule C

Forum|Forum|1 year ago
September 25, 2024
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Last year I filled schedule E with 1040 what would it take to change to schedule C? In other words, what makes the difference between Schedule E & Schedule C? What is a scenario or example for each?

Best answer by KarriC

Schedule E's are for Rental Income (passive), while Schedule C's are for business income (non-passive).

Generally speaking, Rental Income is passive. Passive income can include rent collection, dividends, interest, in other words, income you get but don't work for to get.

Non-passive income is income like your salary or in exchange for services or commission.

For rental property to be non-passive you usually need to be a real estate professional (REPS status) and participate in the day-to-day operations of your rental business.

Bed and Breakfast properties can sometimes qualify as Schedule C because there is active work in preparing meals and other services. The main difference here is the fact that you would provide services to the renters.

KarriCAnswer

Schedule E's are for Rental Income (passive), while Schedule C's are for business income (non-passive).

Generally speaking, Rental Income is passive. Passive income can include rent collection, dividends, interest, in other words, income you get but don't work for to get.

Non-passive income is income like your salary or in exchange for services or commission.

For rental property to be non-passive you usually need to be a real estate professional (REPS status) and participate in the day-to-day operations of your rental business.

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Yes JayAuthor

So, If I start an LLC to maintain rental properties without a real estate license, will that be included in the non-passive? In other words, will a property management LLC be considered for schedule C?

KarriC

In general, to qualify as a real estate professional (doesn't mean you have to be a licensed Realtor):

more than 1/2 of the your total personal services are performed in real property trades or businesses in which you materially participate
you perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate

Another thing to mention is that Sch E filers aren't subject to self-employment tax. If you file a Sch C, you will be subject to self-employment tax.

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