Income from subleasing of several apartments - Schedule C & SE or Schedule E?

Question

Hello,

I have a client that has leased numerous apartments for a year or longer, furnishes them, then subleases them back out at relatively short-term (i.e. three month) intervals, making money from the "spread" - amount of rent he collects minus the amount of rent he has to pay.

Does this "spread" have to be reported on the Schedule C, treated as self-employment income and have self-employment tax computed on it, or the Schedule E, as rental income and no self-employment tax?

Thanks in advance for your help!

Chris Johnson, EA

remove ps · Accepted Answer

How much time is spent on the rentals?  If it is full time job then Schedule C.

paulthomascpa · Answer

"remove ps"  wrote More so if significant services are offered or supplied.

ira smilovitz · Answer

I disagree. The amount of time spent on the activity only impacts whether any losses are immediately deductible or deferred and to what extent. Whether a rental activity involving real estate is reported on Schedule C or E depends on the nature of rental. In the case of real estate, the rentals are Schedule E unless they have an average duration of less than one week or, less than 30 days where significant personal services are provided with the rentals. Neither of these conditions are met in this case.

Ira Smilovitz

D. Stussy · Answer

I have a client that has leased numerous apartments for a year or longer,  furnishes them, then subleases them back out at relatively short-term (i.e.  three month) intervals, making money from the "spread" - amount of rent he  collects minus the amount of rent he has to pay. Does this "spread" have to be reported on the Schedule C, treated as  self-employment income and have self-employment tax computed on it, or the  Schedule E, as rental income and no self-employment tax? ===============Schedule E.  The average rental period is monthly or longer, and these are  complete living quarters (kitchen, bathroom, etc.) as opposed to hotel rooms  which usually have no kitchen, etc.

X · Answer

On Sat, 23 Feb 2013 09:46:35 -0600, D. Stussy    wrote:

remove ps · Answer

Working full time on the rental implies you are providing significant personal services.

Reggie · Answer

no it does not.

Stuart A. Bronstein · Answer

Do you have any reason or authority for saying that?  If you want  to be taken seriously here, you will need to say more than "yes it  does" or "no it doesn't."

ira smilovitz · Answer

No. "Personal services" aren't measured by what you do, but by what the renter receives. The renter must receive personal services that go beyond the maintenance of common areas. There are many ways you can work full time on a rental without providing anything that would be considered personal services.

Ira Smilovitz

remove ps · Answer

So what types of things might be covered?  Like laundry, cleaning, breakfast?  Anything else?

Income from subleasing of several apartments - Schedule C & SE or Schedule E?

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