Short-term rentals with average stays between 8 and 30 days sit in the middle of the tax rules. Depending on the services you provide, your income may be passive rental income on Schedule E or business income on Schedule C. This short-term rental tax guide explains the difference.
How average stay length affects short-term rental tax
The passive activity rules look at the average length of guest stays:
- 7 days or less: generally not a “rental activity.” See our guide to short-term rentals under 7 days.
- 8 to 30 days: not a rental activity if you provide significant personal services. Otherwise, it is treated as a rental activity.
- Over 30 days: generally a rental activity.
For the official rules, see IRS Publication 925.
Stays over 7 days with minimal services: Schedule E
If you provide only basic services, such as cleaning between guests, the property is usually a rental activity. In that case, you report income and expenses on Schedule E.
This income isn’t subject to self-employment tax. However, rental losses are generally passive. So they can only offset passive income, unless an exception applies.
One key exception helps many owners. If you actively participate and your modified adjusted gross income is under $100,000, you may deduct up to $25,000 of rental losses against other income. However, this allowance phases out between $100,000 and $150,000 of income. Real estate professionals may also avoid the passive limits.
Stays under 30 days with substantial services: Schedule C
Some owners provide hotel-like services during guest stays. For example, these include daily cleaning, meals or concierge services. In that case, the activity looks more like a business. So you generally report it on Schedule C.
As a result, your net profit is subject to self-employment tax. On the other hand, if you materially participate, losses aren’t limited by the passive rules. In addition, the business may qualify for the Section 199A qualified business income deduction of up to 20%.
Schedule E vs. Schedule C for short-term rental tax
| Schedule E | Schedule C | |
|---|---|---|
| Typical services | Basic, between stays | Substantial, during stays |
| Self-employment tax | No | Yes |
| Losses | Usually passive | Non-passive if you materially participate |
Get help with short-term rental tax
The right answer depends on stay length, services and your hours. We help owners choose the right reporting and plan for losses. To discuss your property, call (415) 842-2940 or book a free 15-minute call.