Where in the tax return is residential real property rental reported?
A taxpayer renting a "dwelling unit", such as a house, apartment, condominium, mobile home, or boat on a short-term basis, from a single room to the entire property, typically reports the rental activity in their individual tax return on Schedule E.
Rental real estate activity is reported on Schedule C, however, in these two scenarios (where in either case the property is not where the taxpayer resides):
- The taxpayer provides "significant services" to the renter, such as maid service, beyond the usual provision of utilities, trash pickup, and cleaning of common areas. This kind of property is more akin to a hotel or motel.
- The taxpayer is a real estate dealer and is earning rental income from property that's part of his or her inventory of properties for sale. (Rental income from properties not for sale would be reported on Schedule E.)
When does rental activity not need to be reported?
IRC section 280A(g) provides a de minimis rule, in that if the taxpayer rents out their residence for less than 15 days of the year, irrespective of the amount of rental income, they do not need to report the income in their tax return. (They would also not be able to deduct any of the expenses associated with the rental activity, other than the usual allowable deductions on Schedule A.)
What tax documents might the taxpayer receive?
If the taxpayer is utilizing a broker such as Airbnb, Vrbo, HomeAway, Expedia, etc., they may receive a Form 1099-K (reporting their gross revenue from rental activity) and possibly Form 1099-MISC (reporting other non-rental payments). These will all need to be included in gross rental income. Note that the broker or other third-party payers are required to report these payments on a Form 1099 when their total surpasses $600.
What expenses can be deducted?
You and the taxpayer should review IRS Publication 527 to ensure only allowable expenses are deducted on Schedule E and also to learn how to prorate expenses for property that's only partially rented and/or property not available for rent year-round. The taxpayer should retain receipts and other documentation for a minimum of three years in case they are needed for an audit.
Additionally, if the taxpayer is claiming the Qualified Business Income Deduction, they must meet the requirements of Revenue Procedure 2019-38, i.e.:
- keeping contemporaneous records of their rental activity
- maintaining separate books and records for their properties
- demonstrating they devoted a minimum of 250 hours of time annually to the rental activity, and
- attaching a signed safe harbor election statement to the return.
Note: This is a brief article on short-term real estate and vacation rental income. This is not intended as tax advice.
Additional Information:
IRS: Topic No. 415, Renting Residential and Vacation Property
IRS: Publication 527, Residential Rental Property (Including Rental of Vacation Homes)