LACERTE - Short-Term Rentals

[mactoolsix]

I'm aware of the requirement to report rentals with seven days or less average rentals as a Sch C business, and thus subject to SE Tax. However I'm curious as to why Lacerte has an option for Sch E Type of Property "Vacation/Short-term Rental" which does not apply SE Tax.

Also, if is a short-term rental property (say a beach residential condo), must we then use 39 year depreciation instead of 27.5?

[Roland Slugg]

I'm not a Lacerte user, so I can't offer any insight about your first question.

Even if the average rental period is 7 days or less, the real estate is still residential rental property, depreciable over 27.5 years.

For those interested, the "7 days or less" rule can be found in Regs 1.469-1T(e)(3)(ii)(A).

Addendum The above cite is not relevant to the main issue. See the posts that follow.

[Gary2]

For those interested, the "7 days or less" rule can be found in Regs 1.469-1T(e)(3)(ii)(A).

I believe that specific part of the regs only determines whether or not the activity is passive, as per 1.469-1T(d). Whether or not it is subject to SE tax requires either a questionable extrapolation of this regulation or a different line of reasoning.

[Roland Slugg]

You are quite right! That Reg does, indeed, apply only for the purpose of determining if an activity is or is not a rental activity for purposes of applying the PAL rules.

There does not appear to be any such "7 days or less" rule in the definition of what does or does not constitute "self-employment" income. Instead, that determination depends on whether or not substantial services are provided to the occupant, and the one that's always mentioned is "maid services" such as those a hotel or motel would provide. I don't believe that the normal cleaning between occupants of a weekly rental unit which a vacation or resort apartment or condo would routinely provide constitutes "substantial services." The relevant (and correct) cite is Regs §1.1402(a)-4(c).

Getting back to the OP ....

If the property is your typical vacation or resort cabin/apartment/condo/home that usually rents for a week or weekend at a time, but there are no substantial services provided to the tenants, then it should be reported on Schedule E. If substantial services are provided, such as regular maid services, then it's reportable on schedule C and the net income from the activity is also subject to SE tax. This would also explain why Lacerte gives users a choice of classifying a short-term residential rental as a Schedule E or a Schedule C activity.

Thanks to Gary2 for his correction.

[mactoolsix]

Thanks to Gary & Roland for helping to sort this out!