Schedule C Versus Schedule E

By Jason Watson, CPA
Posted Sunday, May 25, 2025

We refer to hotels and hotel-like services such as a hunting lodge or bed and breakfast, and we also mention self-employment taxes and whatnot. What does it all mean? While this topic is quite simple, and while this section will be quite short, we feel compelled to write separately about Schedule C versus Schedule E for your rental property activities.

The common misconception among real estate investors and tax professionals alike is that if you materially participate in the rental activity, including leveraging the short-term rental loophole or real estate professional status, you report this fun stuff on Schedule C.

Wrong. Sure, that is harsh. How about this? Not elegant. Feel the sting just disappear?

All rental properties including short-term rentals and commercial properties are reported on Schedule E and Form 8825 if filing as a partnership all day long, except if you provide substantial personal services.

Here is the exact verbiage from IRS Publication 527 Residential Rental Property-

If you provide substantial services that are primarily for your tenant’s convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C.

Swell, let’s expand on this a bit or at least give you a laundry list (pun intended) of substantial services-

• Daily housekeeping service, turn down with chocolate optional
• Changing bed linens and towels during the stay
• Daily meal service or breakfast (think bed and breakfast) or room service beyond Door Dash
• 24/7 front desk or concierge services (think beyond laminated local dining guide in a 3 ring binder)
• Valet parking (bring a car with a stick shift, they love that)
• Recreational activities (hosted tours, event planning like weddings or corporate events)
• Transportation services such as airport shuttle
• Personal laundry services (obnoxious fees encouraged)
• Wake-up calls (does anyone really do this anymore?)
• Access to staffed gyms, spas, or pools including spa like services (massage, health and beauty)

As such, unless you provide a big chunk of this stuff, your rental activity, including your short-term rental, will be reported on Schedule E or Form 8825, but definitely not Schedule C.

The antithesis of substantial services include cleaning between guest stays (housekeeping), setting out some cheesy wine and K-cups (meal service), offering parking spaces (transportation), and supplying bikes and kayaks (recreation). They are similar to some of the items above, but they don’t rise to the same level and as such they are not the same as providing substantial services. The basic question is- are you acting like a hotel or like a nice weekend getaway that is mostly self-serve.

Sidebar: Once you provide substantial services, your activity is no longer considered a rental activity and therefore is reported on Schedule C as we’ve explained. However, it remains passive unless you materially participate. Yes, this is an oddity.

The only other real estate related activities we see reported on Schedule C among real estate investors is property management for other owners, real estate brokerage, and fix and flips. And if you make more than $50,000 in profits, you should strongly consider an S corporation election to save on self-employment taxes and avoid Schedule C all together.