Sublet Space

[RayT]

Sole proprietor rents a suite of 3 rooms. He uses one for providing professional massage services to his own clients and he rents (sublets) the other two rooms to LMT's who provide professional massage services independently under their own business auspices.

Sole proprietor's professional income is reported on Sch C. Should the rental income be reported on Sch E; or, included on Sch C?

Comments appreciated.

[Burke]

He either shows it as Income on the Sche C, or nets it against his rent expense. It does not go on Sche E. Better check the lease to see if this is permitted.

[Kram BergGold]

I say E

In an audit, the IRS representative said to me, it goes on Schedule E. I have been doing it this way ever since. To prove my point, the sublettor, is required to send the person he is renting from, a 1099, assuming the person is not incorporated. Once he has a 1099 showing rents, he better put it on Schedule E. One caveat, I have been told that when you sublet rented space yoou can't show a loss. My goal is to always show a profit on E thus reducing the income on C subject to SE.

[DaveO]

Does he provide services for them such as CC acceptance, phone, advertising and so on? If so I would see it much like a salon owner doing chair rent which belongs on "C".

[Burke]

GAAP maintains that it is to go in income on the P&L or be netted against the rent expense.