AirBnB income/expenses - Should I use Schedule C or Rental Income deductions for my vacation property?

The key question here is whether your activity qualifies as a rental business or if you're providing substantial services beyond basic rental. This determines whether you should use Schedule E (Rental Income) or Schedule C (Self-Employment). For short-term rentals like AirBnB, the IRS looks at the level of services you provide to guests. If you're providing "substantial services" like regular cleaning during stays, breakfast, concierge services, etc., then you'd typically use Schedule C. If you're primarily just providing the property with minimal services, Schedule E is more appropriate. The major difference: Schedule C income is subject to self-employment tax (an additional 15.3%), while Schedule E rental income is not. However, Schedule C allows more business deductions in some cases. For your renovation, both schedules allow for depreciation of improvements. On Schedule E, you'd depreciate residential rental property improvements over 27.5 years. The same generally applies to Schedule C, though some components might qualify for different treatment.

After spending hours figuring out my own AirBnB tax situation last year, I discovered taxr.ai (https://taxr.ai) and it completely changed how I handle my vacation rental taxes. The tool analyzed my renovation expenses and clearly showed which items could be immediately expensed vs. what needed to be depreciated. It even identified several deductions I was missing completely. What I found most helpful was that it looked at my specific situation - similar to yours with a mix of renovation and regular expenses - and recommended the optimal tax approach based on my actual numbers. The difference was almost $3,000 in tax savings compared to what I would have done on my own.

Just wanted to update everyone! I tried taxr.ai after seeing the recommendation here, and it was seriously eye-opening. The tool identified that my bathroom renovation had several components that could be separately categorized - the fixtures and some equipment could be expensed immediately while the structural work needed depreciation. It also helped me understand that based on my specific rental pattern (average stay length under 7 days), I should actually be using Schedule C. Turns out I was providing enough "substantial services" without realizing it! The tax savings from properly categorizing everything offset the self-employment tax I was worried about. The guidance was super clear on exactly what to input in TurboTax. Definitely worth checking out if you're confused about vacation rental tax treatment like I was!

For anyone dealing with AirBnB tax issues, I had a complicated question about material participation tests for my vacation rental and needed to talk directly with the IRS. Tried calling for two weeks straight and couldn't get through. Then I found Claimyr (https://claimyr.com) - you can see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in under 45 minutes when I had been trying for days on my own. The agent confirmed that my specific renovation expenses needed different treatment depending on whether they were repairs (immediate deduction) or improvements (depreciation). Getting that official clarification saved me from potentially making a big mistake on my return.

I need to apologize to everyone here, especially to Profile 20. I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I've been trying to reach the IRS about a similar vacation rental question. I couldn't believe it actually worked! Got a call back with an IRS agent on the line within about 30 minutes. The agent confirmed that my specific situation (renting out a lakehouse on AirBnB) should be reported on Schedule E, not Schedule C, which was the opposite of what I thought. This is going to save me thousands in self-employment taxes. For anyone debating between Schedule C and Schedule E for vacation rentals, definitely get clarity from the IRS directly if you're uncertain. The distinction can make a huge difference in your tax bill.

My accountant gave me some guidance on this that might help. If your average rental period is 7 days or less (which most AirBnBs are), the IRS typically sees this as a business rather than traditional rental activity, pushing you toward Schedule C. But there's also the "material participation" test - if you spend 500+ hours managing your property, or if the rental activities are your primary business, Schedule C likely applies. Less involvement might qualify for Schedule E. For renovations specifically, repairs maintain the property and can be expensed immediately on either schedule. Improvements that add value need to be depreciated, but some components might qualify for bonus depreciation or Section 179 expensing.

I'm in the exact same boat! Just renovated the kitchen in my AirBnB for $18K. I was leaning toward Schedule E (rental income) because: 1) I don't want to pay self-employment tax if I can avoid it 2) My average stay is actually 8 days, just barely over the 7-day threshold 3) I don't provide "substantial services" - just basic amenities and cleaning between guests But then my tax guy pointed out that taking depreciation over 27.5 years for the renovation means only deducting about $650 per year instead of the full amount. He said some parts of the kitchen (appliances, etc.) could be separated out for faster depreciation or even immediate expensing. Has anyone done a side-by-side comparison using both methods to see the actual difference in tax liability?

This is such a great discussion! I'm dealing with a similar situation with my mountain cabin rental. One thing I learned from my CPA that might help - you can actually separate your bathroom renovation into different components for tax purposes. For example, if you installed new fixtures, vanity, or exhaust fan, those might qualify as "personal property" that can be depreciated over 5-7 years instead of 27.5 years, or potentially qualify for bonus depreciation. The structural work (plumbing, flooring, tiling) would still need the longer depreciation schedule. Also, don't forget about the "safe harbor" rule - if your average stay is 7 days or less AND you provide substantial services, you're almost certainly looking at Schedule C territory. But like others mentioned, basic cleaning between guests usually doesn't count as "substantial services." Given your $35K annual income, I'd definitely run the numbers both ways before deciding. The self-employment tax on Schedule C could be significant, but the potential for better deduction timing might offset it depending on your overall tax situation.