Tax Q: LLC and AirBnb Pros, please help - Schedule C or E

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First post on this magical board, and hoping someone can help us out.

We formed an LLC for the property we just built in 2017.
We do AirBnB and VRBO for the entire property. It has rented out for about 1/4 of 2017 starting in September.

here is the fun part;

The home was built by us and in our personal names, setting up the loan as an investment property. Once it was completed on September 1st, it started life as an AirBnB.

We are lost on where all the expenses go, being that we file the income with the State quarterly and had the home in our personal names. We clean the home, manage all bookings, provide tours and maintenance. I imagine since we provide services, this is all Schedule C… and if the IRS comes knocking, best to be Schedule C than Schedule E.

Any LLCs out there that have a property in their personal name that can help?

Thank you and sorry for any confusion.

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Since the deadline is in two days, I recommend you consult a tax professional in your state rather than an Internet forum where everyone has an opinion but very few of us are tax professionals. And the few that are, probably would elect not to advise you. Or file an extension until you get it sorted.
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We’ve talked to some tax pros and this is such a unique situation, though I appreciate your caution. We have everything else done and this sticking point is our last item. We are personally leaning towards the Schedule C as the side of caution and taking the tax hit. We provide services and it isn’t a LTR where we rent and leave it.

Understand the desire to stay back, though was hoping to hear a few personal experiences… if any.

Thank you!

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@Coho -
Who is the legal owner of the property - you or the LLC?

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@PitonView The property is in our person names, not the LLC. Mortgage/Construction Loan was for an investment property. (if that helps, at all)

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My own experience is that my CPA makes me (okay, advises) me to do the Schedule E. There is apparently some dissent between CPAs about whether to do C or E. But if you have an LLC, maybe C is better, I know NOT, and am no expert!

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thanks for the input. And I completely understand your disclaimer. As an IT professional I couldn’t imagine in any situation saying ‘I was told this on the internet’. LOL

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Given the date, you might want to consider paying your taxes based on a Schedule C along with filing an extension until you can either read the IRS publications and/or meet with a qualified tax professional.

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I’m not a professional, but if your LLC is a single member LLC (owned by one individual; the IRS considers a married couple as an individual), then you report everything on your personal taxes. (We have an S-Corp for our second home, with other family members holding shares, and we had to file the business taxes in March). Then the fact that the LLC has the mortgage is of no interest to the government from a tax perspective.

The difference between Schedule C and E is mostly in the types of service you provide the tenant. Schedule C is for when you provide substantial services for the convenience of the tenant. For instance, we have staff at our villa, with daily housekeeping, pool cleaning, cooking, driver services, etc. We’d clearly have to fill out Schedule C. But if your guest is mostly self-catering, and you just prepare the property for check in and hand them the key, and wave at them as they leave, then you use Schedule E. Here’s the IRS guidance: Publication 527

If you’re still not sure, consult a professional!

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I have all properties in a series LLC which we have in our state. Since it’s a husband and wife as only members of the LLC, we choice file tax as single member pass through income. I have EIN for each series for banking purpose. I give all the info to my CPA, he said it basically no difference on the taxes. He files them on Schedule E… I don’t provide any services like cleaning, maid service, cooking. I hire a cleaning company and pay them. I believe if you clean the rentals yourself, you can’t deduct as your expenses. Unless you set up another LLC as cleaning service.

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I’ve had small businesses for years and always hire a CPA. It’s well worth the money. One year I was audited and I didn’t have to do a thing as he took care of meeting with the IRS people who then ended up owing me money. Laws change every year and professionals keep up on this.

Be diligent in keeping all receipts for deductions and have it all organized for the accountant so it’s convenient for him/her and you won’t be charged as much money as if you would be if you handed the CPA a ball of wax.

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I file Schedule C because I do the work and cook the breakfast. Here’s an article that may help. It says “Schedule E is where you report passive rental real estate. Schedule C is where you report business activity, such as an BnB operation.”
https://www.therealestatecpa.com/2016/10/20/avoiding-tax-traps-short-term-rentals/

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You can see why there would be some controversy about whether what you do would fall into C or E.

For instance, what if you provide self serve pastries and coffee? Is that still actual breakfast?

My cpa asked me, did I cook breakfast and provide daily maid service? If no, E.

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Thank you, everyone, for your help on this. I was hammering the phones yesterday and spoke to the IRS about the issue. Where things got iffy was in that we are the ones that charge and clean the home, as well as manage all the bookings, home tours, and other smaller items. With that cleaning being done by us, that is where it felt we stepped into the ‘substantial services’, even if it was for that small item and thus putting us on the Schedule C. I’m falling on the side of caution, and even spoke to a CPA that said it was likely a good idea. I will be going to a CPA here in a few weeks to get lined up for next year, as this is no joke. Speaking of which, I have to amend 2 previous tax years on a former rental (former primary home) because it turns out it wasn’t a rental since it was our mother (my in-law) staying at the home and we were charging her under FMV. ‘FMV’… that single word changed the whole complexion of everything.

Again, I appreciate all the insight and the direction to seek answers, it was very helpful… and I imagine I will learn quite a bit more once I sit down with that CPA for a more lengthy conversation.

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