 Schedule C, so usually we report on the Schedule E, now we're looking Schedule C, the normal business form for sole proprietors. Profit or loss from business, generally Schedule C is used when you provide substantial services in conjunction with the property or the rental as part of a trade or business as a real estate dealer. So now you can see what's happening here and you can see the difference because you can say okay it's still like rental property is basically involved and this is why we can see it's not just that the expenses are different for rental property is why we put it on the Schedule E because there are situations where you might use the Schedule C when you still have the similar kind of expense situation. It's the fact that when you move to the Schedule E you may be doing so because there's this generally passive activity factor. If you're actively involved in the business then in a more active way then you're providing more services for example then you might report it on a Schedule C in that case and if you report on the Schedule C it's going to be business income subject to the self-employment tax and all that kind of stuff although most likely not subject to the same kind of passive limitations and whatnot when you have losses in that situation and you can just note that you can kind of see the back and forth when you see the regulations with the IRS because you can see generally you can see the IRS basically saying at one time hey look you rental people are taking advantage of rental property reporting massive losses and it's basically passive kind of activity and then they jumped in and said I'm just going to call it all passive activity all rental activity is passive all of a sudden and that was and that was kind of a huge hit and then and then of course people that are actually in the business of with real estate came back and said hey wait a second I'm actually not having passive income you know I actively participate in this thing and you're limiting my business more than other businesses other than rental income and then you can see this compromising kind of situation that ends up happening where we have all these different rules on what qualifies as passive and active and kind of middle in between for the rental property so again generally schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer providing substantial was a substantial loss for the company services so if you provide substantial services that are primarily for your tenants convenience such as regular cleaning changing linen or maid service you report your rental income and expenses on the schedule C because now you're doing a lot of service items within it use form 1065 US return of partnership income if your rental activity is a partnership including a partnership with your spouse unless it is a qualified joint venture so we get into that partnership kind of situation with a spouse which gets a little bit a little bit confusing because you would think you would be reporting as one entity with the schedule E but it gets a little bit messy because you actually have two people involved and so note that if it's actually your business if it's a business income and you're reporting schedule E I mean schedule C then the question is well is it possible to have a to have a commute you might have different rules for a community property state to kind of split out the schedule C versus non-community property states and it also becomes important to properly allocate the the self-employment and Medicare tax that's where it gets messy with the schedule C because the benefits that you will be receiving will be dependent upon how much you paid in that was allocated to the social security social security primarily substantial services don't include the furnishing of heat and light cleaning of public areas trash collection etc so in other words if you're if in your rental property you're furnishing heat and light that's pretty passive it's not like you're actively cleaning of public areas meaning you're not going into the place into the hotel or something and cleaning it by cleaning the public areas trash collection which again is outside so that's you know etc that's that's not the active participation that would kick you over from doing the schedule E to the schedule C the schedule E usually be what you want to be doing if you can be into for most cases because it's well there's pros and cons but the pros would be you might not be subject to the self-employment tax and the cons are that you've got the limitations on the losses so also you may have to pay self-employment tax on your rental income using schedule S E self-employment tax for discussion of substantial services see real estate rents in chapter five of publication 3 3 4 qualified joint venture if you and your spouse each materially participate participate in see material participation under passive activity limits later as the only members of a jointly owned and operated real estate business and you file a joint return for tax year you can make a joint election to be treated as a qualified joint venture instead of a partnership that will usually be easier because in that situation you don't have to file a partnership return which would be a separate return from the 1040 individuals and then have it flow into your joint individual return that's going to cost more be more cumbersome if you're a partnership and you would think with the rental property you would be able to do that it would be easier to do especially if you don't have to do with that added issue of the self-employment tax on the schedule E as opposed to the schedule C where you do have to okay so this this election every election in most cases won't increase the total tax owed on the joint return but it does give you each credit for social security earnings on which retirement benefits are based and the medical coverage uh is your rental income is subject to self-employment tax so if you're reporting on a schedule C then that becomes quite important to get that breakout proper if you make this section if you make this election you must report a rental real estate income on schedule E uh or schedule C if you provide substantial services you won't be required to file form 1065 the partnership return for any year the election is in effect rental real estate income generally isn't included in net earnings from self-employment subject to self-employment tax is generally subject to the passive activity limits so if you and your spouse filed a form 1065 for the year prior to the election the partnership terminates at the end of the tax year immediately preceding the year the election takes effect so if you file the tax return and then you say i don't need this partnership tax return we're going to drop that then the partnership should will basically dissolve hopefully and so now you'll be reporting it on the schedule C so once again if if you and your spouse file the form 1065 partnership return for the year prior to the election the partnership terminates at the end of the tax year immediately preceding the year the election takes place so for more information on qualified joint ventures you can go to irs.gov slash iqjv