Schedule C or Schedule E?

[Boris]

I've got a second home that I am considering using for short term
rentals thru VRBO/Airbnb. I have been looking at the tax implications
and filings that this would require, and there seems to be conflicting
information as to which form would be used to report this activity. I
have read Airbnb's publication by Ernst & Young, who say to use Schedule
E, since you are receiving rental income, while another article on
Airbnb says, watch out, many tax preparers will tell you to use Schedule
E, but you should use Schedule C because you are a business.

Here are some of the conditions I've found relevant to determing which
Schedule to use:

I visit the home about two times a month, and stay for three to five
days at a time, relaxing and doing repairs. I would continue to do
this.

I anticipate the average short term rental would be less than seven
days. This is what seems to determine that I would need to use Schedule
C, per IRS Pub. 925, page 3, "Rental Activities - Exception 1"

I file a Schedule E, Part IV, non-passive activity from a K-1,
Estate/Trust

I also file Schedule A, B, D, and Form 8949.

No services would be offered to renters, other than a place to stay.
They would do their own cooking, laundry, etc.

I would hire a houskeeper to clean between renters.

I currently do repairs such as plumbing, electrical, mechanical,
gardening, etc., and would continue to do so.

Once the home is put on the short term rental market, are major
replacements such as water heater/ac/furnace/ an expense or must they be
amortized?

If I suffer losses, is it diffult to 'unwind', tax wise, and get out of
the short term rental activity? I don't want to get into something I
eventually wish I hadn't. Even when vacant, which it is most of the
time, there are still expenses such as property taxes,
gas/water/electric/sewer, pool guy, gardner...I would like to offset
these costs in orer to keep the home. I may move there someday.

Thanks.

--
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[lotax]

Boris: I'm mighty sure that "Exception 1" that you've found on Page 3 of IRS's Pub 925 is applicable in determining whether or not the activity is a rental activity and therefore is subject to the "per se" rule in deciding whether or not it's a passive activity.

And I'm just as certain that this "Exception 1" has nothing at all to do with deciding whether or not income from the activity would be subject to self-employment tax. The seven-days-or-less rule is just not relevant in the context of SE tax.

The applicability - or not- of SE taxes is based on services rendered, or not rendered, by the owner of the activity, i.e., the taxpayer.

If the services rendered make the activity subject to SE tax, put the activity's income and deductions on Schedule C, and put the net income of Schedule SE.

If the activity isn't subject to SE tax, put the income and deductions on Schedule E.

Check back to your sources and see if this isn't really the case.

[Arthur Rubin]

On Thursday, April 13, 2017 at 1:54:47 PM UTC-7, Boris wrote:
> I've got a second home that I am considering using for short term
> rentals thru VRBO/Airbnb. I have been looking at the tax implications
> and filings that this would require, and there seems to be conflicting
> information as to which form would be used to report this activity. I
> have read Airbnb's publication by Ernst & Young, who say to use Schedule
> E, since you are receiving rental income, while another article on
> Airbnb says, watch out, many tax preparers will tell you to use Schedule
> E, but you should use Schedule C because you are a business.
>
> Here are some of the conditions I've found relevant to determing which
> Schedule to use:
>
> I visit the home about two times a month, and stay for three to five
> days at a time, relaxing and doing repairs. I would continue to do
> this.
>
> I anticipate the average short term rental would be less than seven
> days. This is what seems to determine that I would need to use Schedule
> C, per IRS Pub. 925, page 3, "Rental Activities - Exception 1"

In my opinion, based on what I've seen on various groups, mailing lists, and seminars, is that you would have a passive Schedule C rental, subject to SE tax. (A Schedule C rental _can_ be non-passive, but yours does not seem to be. A Schedule E rental is defined to be passive.)

This means you do not have access to the $25,000 annual recognized loss on Schedule E rentals, but you may be able to recogize the accumulated passive losses if you formally abandon the business.)

As in any business, you are subject to the uniform capitalization standard. This means that major replacements must be capitalized and depreciated unless they fall under the "de minimus" exception, in which case they are expensed.

If you do not do repairs on _each day_ you are staying at the house (and possibly even then -- I don't recall the precise standard), it is considered "personal use", and depreciation and general expenses are reduced by the percentage of personal use.

--
Arthur Rubin, AFSP, CRTP
Brea, CA

[lotax]

What makes this activity subject to SE tax? What rule and what facts...

[Boris]

Boris <nos...@nospam.invalid> wrote in
news:XnsA756881CF71A3n...@213.239.209.88:

I believe I will have to make my own flowchart to determine when this
situation is first thrown into either schedule.

I still welcome all replies.

[maria...@gmail.com]

On Thursday, April 13, 2017 at 1:54:47 PM UTC-7, Boris wrote:

It has been discussed ad nosium in various professional publications. Airbnb service agreement is phrased to require that serviced be provided in addition to space rental (the "breakfast" part of "bnb" and the sheets and towels). This makes it a Schedule C business automatically, NOT a passive activity for Schedule E.

Maria U. Ku, CPA
Oakland, CA

[Arthur Rubin]

On Friday, April 14, 2017 at 2:36:13 PM UTC-7, lotax wrote:
> What makes this activity subject to SE tax? What rule and what facts...

Any Schedule C reporting, except as statutory employees, is subject to SE tax. There USED to be a provision that some businesses with NO active involvement were not subject to SE tax, but that was _so_ 20th century.

--
Arthur Rubin, AFSP, CRTP, Brea, CA

[Alan]

To add some clarity to this thread.....
Rental activities go on Schedule E unless you are running a business.
Your rental activity will be considered a business (Schedule C) if you
provide substantial services for the convenience of your guests.
Substantial services for guest convenience is any of the services one
receives from either a B&B, hotel or motel when you check in (linen
service, maid service, meal, room service, etc.)

Assuming you provide no services for the convenience of the guest, you
are on Schedule E and if you have a loss, you have a passive loss that
can only be applied to passive income unless you meet an exception. The
exception is "active participation." This means you actively manage your
rental activity. E.g., you select the tenant or guest, you set the Ts
and Cs of the rental agreement, you decide when and who makes repairs or
capital improvements, etc. Just about everyone who rents meets this
standard. So, if you actively manage, you can take up to $25K of losses
against nonpassive income if your AGI stays below a certain threshold.
But wait, there's more.... There is an exception to the exception. If
your average rental period is less than 7 days, then the Section 469
regulations disallow taking any loss other than against passive income.
This is the only time the less than 7 day rule applies. It has
absolutely nothing to do whether you report your activity on Schedule C
or E.

Many of the AirBnB hosts fall into the less than 7 day avg rental period
and are precluded from taking losses against nonpassive income.

Lastly, there are a whole set of rules relating to how you allocate
expenses between personal use and rental use. My advice is to have a tax
professional familiar with rental rules prepare your first return. Watch
and learn and you can probably do the subsequent ones on your own.
Of all the online docs I have seen, the one that presents a pretty clear
explanation of all this is from... wait.... wait.... here it comes...
H&R Block.
https://www.hrblock.com/pdf/Tax-Information-for-Hosts1-4-16.pdf

[MTW]

On Saturday, April 15, 2017 at 12:56:13 PM UTC-7, Alan wrote:
> There is an exception to the exception. If
> your average rental period is less than 7 days, then the Section 469
> regulations disallow taking any loss other than against passive income.
> This is the only time the less than 7 day rule applies. It has
> absolutely nothing to do whether you report your activity on Schedule C
> or E.

I've been struggling for decades (or so it seems) to wrap my head around this, but I think I'm finally coming around to the viewpoint you and lotax have advocated on the 7 day rule (that it relates only to passive loss rules).

So would we be left with this: If the landlord of a vacation rental property includes linens and cleaning (even if charged separately) in the deal, it is likely a Schedule C activity and presumably subject to SE tax.

On the other hand, if no linens are furnished, and the tenant is required to clean the property with no assistance from the landlord (and perhaps faces a penalty if he fails to do so), then it is likely a Schedule E activity.

Does that about sum it up??? ;-)

[Taxed and Spent]

On 4/17/2017 3:16 PM, MTW wrote:
> On Saturday, April 15, 2017 at 12:56:13 PM UTC-7, Alan wrote:
>> There is an exception to the exception. If
>> your average rental period is less than 7 days, then the Section 469
>> regulations disallow taking any loss other than against passive income.
>> This is the only time the less than 7 day rule applies. It has
>> absolutely nothing to do whether you report your activity on Schedule C
>> or E.
>
> I've been struggling for decades (or so it seems) to wrap my head around this, but I think I'm finally coming around to the viewpoint you and lotax have advocated on the 7 day rule (that it relates only to passive loss rules).
>
> So would we be left with this: If the landlord of a vacation rental property includes linens and cleaning (even if charged separately) in the deal, it is likely a Schedule C activity and presumably subject to SE tax.
>
> On the other hand, if no linens are furnished, and the tenant is required to clean the property with no assistance from the landlord (and perhaps faces a penalty if he fails to do so), then it is likely a Schedule E activity.
>
> Does that about sum it up??? ;-)
>

I have heard opinions that if all the owner does is provide clean linens
upon a guest's arrival, that does not constitute "significant services"
as far as Schedule E and SE tax goes.

[Alan]

On 4/17/2017 3:16 PM, MTW wrote:

> On Saturday, April 15, 2017 at 12:56:13 PM UTC-7, Alan wrote:
>> There is an exception to the exception. If
>> your average rental period is less than 7 days, then the Section 469
>> regulations disallow taking any loss other than against passive income.
>> This is the only time the less than 7 day rule applies. It has
>> absolutely nothing to do whether you report your activity on Schedule C
>> or E.
>
> I've been struggling for decades (or so it seems) to wrap my head around this, but I think I'm finally coming around to the viewpoint you and lotax have advocated on the 7 day rule (that it relates only to passive loss rules).
>
> So would we be left with this: If the landlord of a vacation rental property includes linens and cleaning (even if charged separately) in the deal, it is likely a Schedule C activity and presumably subject to SE tax.
>
> On the other hand, if no linens are furnished, and the tenant is required to clean the property with no assistance from the landlord (and perhaps faces a penalty if he fails to do so), then it is likely a Schedule E activity.
>
> Does that about sum it up??? ;-)
>

No. The mere fact that there are linens provided at the start of the
rental and that the place is cleaned after the visitor departs is not
enough to change the activity from E to C. Having someone come in every
day to make the beds, change linen, clean the room, replenish amenities
would move it to C. (maid service)
Providing meals or live entertainment moves it. Providing concierge
services moves it. Basically, anything you expect from a B&B.

I do recommend that if you higher someone to clean the place after each
rental, you not bundle that cost into the rental rate. If the terms of
your rental include a cleaning fee identified separately, that's okay also.

[MTW]

On Tuesday, April 18, 2017 at 9:16:34 AM UTC-7, Alan wrote:

> No. The mere fact that there are linens provided at the start of the
> rental and that the place is cleaned after the visitor departs is not
> enough to change the activity from E to C. Having someone come in every
> day to make the beds, change linen, clean the room, replenish amenities
> would move it to C. (maid service)

May I ask, where do you find "authoritative" support for that conclusion? I no longer have access to decent research tools, but the "highest" authority I can find is Reg 1.1402(a)-4(c)(2) which reads (EMPHASIS ADDED):

---begin quote---
(2)Services rendered for occupants. Payments for the use or occupancy of rooms or other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or other quarters in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, or payments for the use or occupancy of space in parking lots, warehouses, or storage garages, do not constitute rentals from real estate; consequently, such payments are included in determining net earnings from self-employment. GENERALLY, SERVICES ARE CONSIDERED RENDERED TO THE OCCUPANT IF THEY ARE PRIMARILY FOR HIS CONVENIENCE AND ARE OTHER THAN THOSE USUALLY OR CUSTOMARILY RENDERED IN CONNECTION WITH THE RENTAL OF ROOMS OR OTHER SPACE FOR OCCUPANCY ONLY The supplying of maid service, for example, constitutes such service; whereas the furnishing of heat and light, the cleaning of public entrances, exits, stairways and lobbies, the collection of trash, and so forth, are not considered as services
rendered to the occupant.
---end quote---

Although this provision mentions "maid service" as an example, I am more interested in the sentence I emphasized. And I would note, during my illustrious lifetime I have rented (full time) a number of apartments and a couple of houses, and I've NEVER found linens to be provided by the landlord. Meanwhile, I've also rented a handful of vacation rentals, where I've ALWAYS found linens to be included. So it seems to me, the furnishing of linens (which are presumably clean when provided, but I may return "dirty") is enough to trigger the quoted regulation and therefore SE tax would apply.

[Taxed and Spent]

On 4/18/2017 3:37 PM, MTW wrote:
> On Tuesday, April 18, 2017 at 9:16:34 AM UTC-7, Alan wrote:
>
>> No. The mere fact that there are linens provided at the start of the
>> rental and that the place is cleaned after the visitor departs is not
>> enough to change the activity from E to C. Having someone come in every
>> day to make the beds, change linen, clean the room, replenish amenities
>> would move it to C. (maid service)
>
> May I ask, where do you find "authoritative" support for that conclusion? I no longer have access to decent research tools, but the "highest" authority I can find is Reg 1.1402(a)-4(c)(2) which reads (EMPHASIS ADDED):
>
> ---begin quote---
> (2)Services rendered for occupants. Payments for the use or occupancy of rooms or other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or other quarters in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, or payments for the use or occupancy of space in parking lots, warehouses, or storage garages, do not constitute rentals from real estate; consequently, such payments are included in determining net earnings from self-employment. GENERALLY, SERVICES ARE CONSIDERED RENDERED TO THE OCCUPANT IF THEY ARE PRIMARILY FOR HIS CONVENIENCE AND ARE OTHER THAN THOSE USUALLY OR CUSTOMARILY RENDERED IN CONNECTION WITH THE RENTAL OF ROOMS OR OTHER SPACE FOR OCCUPANCY ONLY The supplying of maid service, for example, constitutes such service; whereas the furnishing of heat and light, the cleaning of public entrances, exits, stairways and lobbies, the collection of trash, and so forth, are not considered as servic
es
> rendered to the occupant.
> ---end quote---
>
> Although this provision mentions "maid service" as an example, I am more interested in the sentence I emphasized. And I would note, during my illustrious lifetime I have rented (full time) a number of apartments and a couple of houses, and I've NEVER found linens to be provided by the landlord. Meanwhile, I've also rented a handful of vacation rentals, where I've ALWAYS found linens to be included. So it seems to me, the furnishing of linens (which are presumably clean when provided, but I may return "dirty") is enough to trigger the quoted regulation and therefore SE tax would apply.
>

You have provided the authoritative support for that conclusion.

If you rent a furnished room on a long term lease, you generally provide
clean linens when the room is rented. And you generally do not rely on
a departing tenant, but yourself provide clean linens to the next long
term tenant.

So, that would constitute "USUALLY OR CUSTOMARILY RENDERED IN CONNECTION
WITH THE RENTAL OF ROOMS OR OTHER SPACE FOR OCCUPANCY ONLY".

So, you would not be providing services "OTHER THAN THOSE USUALLY OR

CUSTOMARILY RENDERED IN CONNECTION WITH THE RENTAL OF ROOMS OR OTHER

SPACE FOR OCCUPANCY ONLY."

[lotax]

According to H&R Block, it's really easy to decide where to report short-term rental income and the related expenses:

Schedule E Rentals
Most common classification;
occurs when a host
does not provide “substantial services” to their guests.
This income is not subject to self-employment tax.
.
Schedule C Rentals –
A rental will typically fall into this category when
“substantial services” are provided to guests
though there are other
rare cases where this can occur.
This income is subject to the self-employment tax.

[Stuart O. Bronstein]

lotax <lo...@hotmail.com> wrote:

> According to H&R Block, it's really easy to decide where to report
> short-term rental income and the related expenses:
>
> Schedule E Rentals
> Most common classification;
> occurs when a host
> does not provide “substantial services” to their guests.
> This income is not subject to self-employment tax.
> .
> Schedule C Rentals –
> A rental will typically fall into this category when
> “substantial services” are provided to guests
> though there are other
> rare cases where this can occur.
> This income is subject to the self-employment tax.

This distinction seems so odd to me. Because whether or not
"personal services" are involved from the taxpayer's standpoint has
nothing to do with the services actually provided by the taxpayer,
but what is received by the customer.

--
Stu
http://DownToEarthLawyer.com

[lotax]

I convinced myself somewhere along the line that the reasoning behind this
"real-estate-rental-income-isn't-self-employment-income" is that our government felt it wasn't right for *landlords* to create retirement benefits (social security credits and accounts) based on the income from their *property* while the rest of us had to sweat or at least think (work) for our benefits. Anybody?

[Alan]

On 4/18/2017 3:37 PM, MTW wrote:

> On Tuesday, April 18, 2017 at 9:16:34 AM UTC-7, Alan wrote:
>
>> No. The mere fact that there are linens provided at the start of the
>> rental and that the place is cleaned after the visitor departs is not
>> enough to change the activity from E to C. Having someone come in every
>> day to make the beds, change linen, clean the room, replenish amenities
>> would move it to C. (maid service)
>
> May I ask, where do you find "authoritative" support for that conclusion? I no longer have access to decent research tools, but the "highest" authority I can find is Reg 1.1402(a)-4(c)(2) which reads (EMPHASIS ADDED):
>
> ---begin quote---
> (2)Services rendered for occupants. Payments for the use or occupancy of rooms or other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or other quarters in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, or payments for the use or occupancy of space in parking lots, warehouses, or storage garages, do not constitute rentals from real estate; consequently, such payments are included in determining net earnings from self-employment. GENERALLY, SERVICES ARE CONSIDERED RENDERED TO THE OCCUPANT IF THEY ARE PRIMARILY FOR HIS CONVENIENCE AND ARE OTHER THAN THOSE USUALLY OR CUSTOMARILY RENDERED IN CONNECTION WITH THE RENTAL OF ROOMS OR OTHER SPACE FOR OCCUPANCY ONLY The supplying of maid service, for example, constitutes such service; whereas the furnishing of heat and light, the cleaning of public entrances, exits, stairways and lobbies, the collection of trash, and so forth, are not considered as servic
es
> rendered to the occupant.
> ---end quote---
>
> Although this provision mentions "maid service" as an example, I am more interested in the sentence I emphasized. And I would note, during my illustrious lifetime I have rented (full time) a number of apartments and a couple of houses, and I've NEVER found linens to be provided by the landlord. Meanwhile, I've also rented a handful of vacation rentals, where I've ALWAYS found linens to be included. So it seems to me, the furnishing of linens (which are presumably clean when provided, but I may return "dirty") is enough to trigger the quoted regulation and therefore SE tax would apply.
>

This may be a duplicate reply. I didn't get confirmation that the first
reply was transmitted.

In addition to the reply from Taxed and Spent, read the preceding
paragraph in the regs you cited. It tells you that when there are no
services provided you have a rental not subject to SE tax EVEN if you
provide personal property as part of the rental agreement. So, you can
provide furniture, dinnerware, silverware, linens, etc. Adding, changing
or removing some of the personal property between tenants would not be a
personal service.

[MTW]

On Thursday, April 20, 2017 at 1:32:02 PM UTC-7, Alan wrote:

> In addition to the reply from Taxed and Spent, read the preceding
> paragraph in the regs you cited. It tells you that when there are no
> services provided you have a rental not subject to SE tax EVEN if you
> provide personal property as part of the rental agreement. So, you can
> provide furniture, dinnerware, silverware, linens, etc. Adding, changing
> or removing some of the personal property between tenants would not be a
> personal service.

OK, now I get it. You guys view the furnishing of linens to a transient renter to be a rental of tangible property. Maybe that flies, but I disagree. ;-)

In my opinion, the furnishing of linens in this context is more of a service than a tangible property transaction. Or, if you prefer, in the words of a very old game show, it's a "service with a product connected."

I view it this way because there is no expectation or obligation on the part of the renter to return the items in the SAME CONDITION in which they were furnished. In other words, the linens are furnished "clean," but the renter will inevitably return them "dirty," and they will need to be washed before anyone else can use them. So I view this overall as a service, and it is clearly for the convenience of the renter. And it is clearly not something that is necessary to facilitate the basic habitability of the dwelling unit.

Or, in other words, I view this as a question of "form versus substance." In my opinion, the substance wins out, and the substance is that this is a service.

But I'm guessing just about no one around here will agree with me on this, so maybe we'll have to just leave it at that. In the meantime, I would love to see any "authoritative" cites that can be provided on the SE tax issue. :-)

[Alan]

On 4/20/2017 3:45 PM, MTW wrote:
> On Thursday, April 20, 2017 at 1:32:02 PM UTC-7, Alan wrote:
>
>> In addition to the reply from Taxed and Spent, read the preceding
>> paragraph in the regs you cited. It tells you that when there are no
>> services provided you have a rental not subject to SE tax EVEN if you
>> provide personal property as part of the rental agreement. So, you can
>> provide furniture, dinnerware, silverware, linens, etc. Adding, changing
>> or removing some of the personal property between tenants would not be a
>> personal service.
>
> OK, now I get it. You guys view the furnishing of linens to a transient renter to be a rental of tangible property. Maybe that flies, but I disagree. ;-)
>
> In my opinion, the furnishing of linens in this context is more of a service than a tangible property transaction. Or, if you prefer, in the words of a very old game show, it's a "service with a product connected."
>
> I view it this way because there is no expectation or obligation on the part of the renter to return the items in the SAME CONDITION in which they were furnished. In other words, the linens are furnished "clean," but the renter will inevitably return them "dirty," and they will need to be washed before anyone else can use them. So I view this overall as a service, and it is clearly for the convenience of the renter. And it is clearly not something that is necessary to facilitate the basic habitability of the dwelling unit.
>
> Or, in other words, I view this as a question of "form versus substance." In my opinion, the substance wins out, and the substance is that this is a service.
>
> But I'm guessing just about no one around here will agree with me on this, so maybe we'll have to just leave it at that. In the meantime, I would love to see any "authoritative" cites that can be provided on the SE tax issue. :-)
>

Let me try it this way. You have a duplex and you rent one of the units
completely furnished. You rent the other unit unfurnished and will only
accept a lease of one year or more. The furnished unit is typically
rented from periods ranging from weekends to a month during high season.
No services are provided to the tenants of the furnished unit while they
occupy the residence. The unit is cleaned by a cleaning service you hire
after the tenant departs or by the property mgt company who is handling
the rentals. The cleaning includes replacing used linens with clean
ones, ensuring that the dishes, silverware, appliances, etc. are
clean., that the bathrooms/toilets are clean, the floors swept, etc.
Typically, what you would do to clean your own home and make it
presentable for guests.

I claim that both units are a rental activity on Schedule E. No services
are provided to the tenant while they occupy the unit. The owner has an
obligation to keep his rental property clean or he could not rent it.

If there is an office on the premises where a staff of people managing
the complex of homes is also providing concierge services, room service,
daily maid service, etc., you have a business.

[Stuart O. Bronstein]

lotax <lo...@hotmail.com> wrote:

> I convinced myself somewhere along the line that the reasoning
> behind this
> "real-estate-rental-income-isn't-self-employment-income" is that
> our government felt it wasn't right for *landlords* to create
> retirement benefits (social security credits and accounts) based
> on the income from their *property* while the rest of us had to
> sweat or at least think (work) for our benefits. Anybody?

That does make sense - it's a passive investment. But it's no less
passive if the property owner pays a maid service to change the sheets
every day, while really doing nothing himself other than just paying
the bills. I guess it's a lazy way to make the distinction.

--
Stu
http://DownToEarthLawyer.com

[MTW]

On Thursday, April 20, 2017 at 5:49:43 PM UTC-7, Alan wrote:

> I claim that both units are a rental activity on Schedule E. No services
> are provided to the tenant while they occupy the unit. The owner has an
> obligation to keep his rental property clean or he could not rent it.

Where, may I ask, do you find "authoritative" support for the conclusion that only services performed while the tenant occupies the unit are relevant to this determination? The "highest" authority that I can find (the IRC 1402 regulation that I quoted earlier) doesn't appear to make that distinction. Rather, it simply speaks of services rendered "for the convenience of" the occupant.

So, I do think there is a distinction between the two duplex rental scenarios you presented. In the case of the "furnished" unit, I believe a "facts and circumstances" inquiry would be called for to determine whether or not services were rendered for the convenience of the occupant (see reg for exact language).

But keep in mind, I'm perfectly open to being persuaded differently. All that would be needed is an "authoritative" source that leads to a different conclusion than the one I've stated above. ;-)

(Note to non-pros who might be reading this: "Authoritative" is a term of art. It means a source that can be cited in court as precedent. IRS publications, articles by H&R Block, opinions of tax preparers (including myself!), etc., are NOT in and of themselves "authoritative.")

[MTW]

On Thursday, April 20, 2017 at 1:06:30 PM UTC-7, lotax wrote:
> I convinced myself somewhere along the line that the reasoning behind this
> "real-estate-rental-income-isn't-self-employment-income" is that our
> government felt it wasn't right for *landlords* to create retirement
> benefits (social security credits and accounts) based on the income from
> their *property* while the rest of us had to sweat or at least think (work)
> for our benefits. Anybody?

That's definitely something to consider.

My "guess" as to the exclusion has always been that capital (rather than labor) was the material income-producing factor in the case of property rentals. Who knows ??? :-)

[Alan]

On 4/21/17 10:04 AM, MTW wrote:
> On Thursday, April 20, 2017 at 5:49:43 PM UTC-7, Alan wrote:
>
>> I claim that both units are a rental activity on Schedule E. No services
>> are provided to the tenant while they occupy the unit. The owner has an
>> obligation to keep his rental property clean or he could not rent it.
>
> Where, may I ask, do you find "authoritative" support for the conclusion that only services performed while the tenant occupies the unit are relevant to this determination? The "highest" authority that I can find (the IRC 1402 regulation that I quoted earlier) doesn't appear to make that distinction. Rather, it simply speaks of services rendered "for the convenience of" the occupant.
>
> So, I do think there is a distinction between the two duplex rental scenarios you presented. In the case of the "furnished" unit, I believe a "facts and circumstances" inquiry would be called for to determine whether or not services were rendered for the convenience of the occupant (see reg for exact language).
>
> But keep in mind, I'm perfectly open to being persuaded differently. All that would be needed is an "authoritative" source that leads to a different conclusion than the one I've stated above. ;-)
>
> (Note to non-pros who might be reading this: "Authoritative" is a term of art. It means a source that can be cited in court as precedent. IRS publications, articles by H&R Block, opinions of tax preparers (including myself!), etc., are NOT in and of themselves "authoritative.")
>

I rely upon the plain language of the regulation.
"Generally, services are considered rendered to the occupant if they are
primarily for his convenience and are other than those usually or
customarily rendered in connection with the rental of rooms or other
space for occupancy only." I claim that when you rent a furnished unit
for occupancy, it is usual and customary for the place to be clean
before it is occupied. It is not customary to rent a furnished unit with
soiled linens, dirty toilets, etc.

[Stuart O. Bronstein]

MTW <mtwi...@yahoo.com> wrote:
> lotax wrote:

>> I convinced myself somewhere along the line that the reasoning
>> behind this
>> "real-estate-rental-income-isn't-self-employment-income" is that
>> our government felt it wasn't right for *landlords* to create
>> retirement benefits (social security credits and accounts) based
>> on the income from their *property* while the rest of us had to
>> sweat or at least think (work) for our benefits. Anybody?
>
> That's definitely something to consider.
>
> My "guess" as to the exclusion has always been that capital
> (rather than labor) was the material income-producing factor in
> the case of property rentals. Who knows ??? :-)

I agree with that. But if that's it, the test is flawed. Paying
someone to change the sheets every day or to cook breakfast is no
less an investment of capital and no more providing your own personal
services than merely providing someone a place to sleep without
additional services.

--
Stu
http://DownToEarthLawyer.com

[Stuart O. Bronstein]

Alan <temp...@vacationmail.com> wrote:

> It is not customary to rent a furnished unit with
> soiled linens, dirty toilets, etc.

I guess you stay at different places than I do. :-)

--
Stu
http://DownToEarthLawyer.com