Brad A <brada[at]via.net> wrote:

- quote -

One issue, I suppose, is whether your sub-leasing activities
are so significant as to classify you as a "dealer" in real
estate. (This is a "facts and circumstances" question with
no precise guidelines.) In that case, Schedule C would
definitely be in order, as would (most likely) Schedule SE
for self-employment tax.

On the other hand, if these are non-transient rentals
(longer than 30 days) and you are NOT providing any other
significant services to your sub-tenants, then these would
indeed sound like "rental" transactions that belong on
Schedule E.

Note, however, that EITHER Schedule C or E can involve
PASSIVE activities. The only additional distinction is that
"rental" activities might be entitled to the special $25,000
loss allowance, whereas non-rental passive activities are
not. Also, keep in mind, the proper treatment ultimately
depends on the facts and circumstances, NOT the particular
form that you choose to report it on.

MTW

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Brad A wrote:

(Re subleasing business -- Schedule C vs. Schedule E.)

- quote -

I can't comment on which is correct, but another difference
is that if it were on Schedule E it wouldn't be subject to
SE taxes if there were a gain.

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I'm in the middle of an IRS audit which doesn't look like
it will change my taxable amounts.

However, an issue about which IRS form to use has come up.
One of my businesses involves my master leasing
residential and commercial properties and then trying
to make money by subleasing all or part of them.
For years I've been reporting this activity on a
Schedule C because I don't actually own the properties
in question and because I found a SIC industry code
described as "lessor of buildings." On the other hand
I do consider this to be a passive activity, similar to
the rental of properties that I do own, which I report
on my Schedule E's.

The auditor seems to think that the sub-leasing business
should also be reported on a Schedule E. He spent some
time during the audit trying to track down a precendent
for which form to use, but he couldn't find anything.
His thinking was that since this was a rental activity,
then Schedule E would be more appropriate.

Does anyone know if there are guidelines on how to report
this kind of activity ?

The only tax implications I can see for using Sched E would
be the Passive Loss limitations, but those won't currently
impact my return.

Thanks in advance,
-brad a.

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