I have a question about whether or not rental income would be considered passive in this situation:
Person owns and lives in a house, and rents out two bedrooms. He is the only one dealing with the tenants. It's not really a business, but it's more than an investment.
Can this be done on a Schedule C?
Thanks.
Is the typical rental period more than 30 days? If so, it's Schedule E. If less, it might be Schedule C. Look at the rules for rental real estate vs. hotel.
Ira Smilovitz
Assuming the portions rented do not constitute completely separate dwelling units (with their own kitchen, bath, etc.), this situation probably falls under IRC 280A (the so-called "vacation home" rules). And, as such, it is not considered "passive," but rather is subject to 280A's own, very restrictive, loss limitations.
280A properties are usually reported on Schedule E. In theory, it seems to me that Schedule C might be applicable in some cases, but I've never seen/heard of it being used in actual practice. When 280A applies, it generally trumps all other sections that might be applicable (IRC 183, 469, etc.).MTW
Rental income unless he is also providing other services other than utilities such as maid service and laundry. Then it is a boarding house and a business (Schedule C).
But even in the "boarding house" case, it would be subject to 280A because there is mixed business and personal use of a common "dwelling unit." In that case I suppose you could implement the 280A limitations on Form 8829 attached to Schedule C.
Yes, the taxpayer is limited by Sec. 280A. The 8829 is used to determine the applicable business expense that gets posted to the Schedule C. The remainder of the Schedule C would include those expenses that were not accounted for on the 8829. E.g., the cost of maid service and laundry.
Have something to add? Share your thoughts — no account required.
Ask the community — no account required