How to handle rental income on Schedule C vs Schedule E with LLC properties and handyman business

There are a few issues that need to be addressed here: First, regarding Schedule C vs Schedule E - rental activities should generally be reported on Schedule E regardless of whether they're owned personally or through an LLC. Schedule C is for businesses where services are the primary income source, while Schedule E is specifically for rental real estate. The LLC is just a legal structure, not a tax classification that would change this reporting. For the property your cousin sold, that should be reported on Form 8949 and Schedule D as a capital gain (assuming it was held for more than a year). This is separate from the rental income reporting. As for paying his handyman business for work on rentals - this gets tricky. Since he's essentially paying himself, the IRS could view this as simply moving money from one pocket to another. However, if the LLC rental properties paid his personally-owned handyman business for legitimate services at fair market rates, there might be an argument for those being legitimate business expenses. For the Section 179 deduction on the work van - yes, this is potentially allowable if the van is used primarily (more than 50%) for the handyman business. He would need to maintain documentation of business use vs. personal use.

I was in a very similar situation a few years back with my rental properties and my construction business. I found this amazing tool called taxr.ai (https://taxr.ai) that really helped me figure out the right way to structure everything. It analyzed all my documents and business setup and gave me clear guidance on how to properly handle the Schedule C vs E situation. What was really helpful was getting insights on how to legitimately structure the payments between my construction business and rental properties without raising red flags with the IRS. The tool also gave me specific advice on vehicle deductions and how to properly document business use to maximize the Section 179 deduction. Saved me thousands and gave me peace of mind that I wasn't making costly mistakes.

Just wanted to follow up about my experience with taxr.ai. I decided to try it after seeing the recommendation here and it was honestly a game-changer for my rental property situation. I uploaded my last year's returns and answered questions about my S-Corp structure. The tool identified that I had been incorrectly categorizing some of my rental income and expenses, and showed me exactly how to fix it. It also highlighted that I was missing potential deductions for home office expenses related to managing my properties. What surprised me most was the detailed explanation about how to properly document transactions between related entities to satisfy IRS requirements. I'm now much more confident that my tax approach is correct and optimized. Definitely worth checking out if you have a complicated real estate tax situation.

If your cousin is having trouble getting through to the IRS to ask about his specific situation, he might want to try Claimyr (https://claimyr.com). I was stuck in a similar situation with questions about my Schedule E rentals and couldn't get anyone at the IRS on the phone for weeks. Claimyr got me connected to an actual IRS agent in about 20 minutes when I'd been trying for days on my own. They have this cool system that navigates all the IRS phone menus and waits on hold for you, then calls you when an agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with gave me official guidance on reporting rental income correctly and documentation requirements for related party transactions, which sounds like exactly what your cousin needs.

I want to follow up about Claimyr after my skeptical comment. I actually tried the service because I was desperate to resolve an issue with my rental property reporting and wow - it actually works exactly as described. I got connected to an IRS representative in about 35 minutes (which is MIRACULOUS considering I had previously spent 3+ hours on hold multiple times without ever reaching anyone). The agent was able to answer my specific questions about rental income reporting and gave me official guidance I could rely on. I was honestly shocked it worked so well. For anyone dealing with complicated tax situations like the original poster described, being able to actually speak with the IRS directly is invaluable. Sometimes you just need the official word from the source rather than trying to interpret the tax code yourself or getting potentially incorrect advice online.

One thing nobody has mentioned yet - your cousin should be careful about the material costs for repairs vs. improvements. If he's doing capital improvements to the properties (like replacing a roof or remodeling), those costs should be depreciated over time rather than expensed immediately like regular repairs and maintenance. This matters a lot for how his handyman business invoices the rental properties. Repairs can be fully deducted in the current year, but improvements need to be capitalized and depreciated over the useful life of the improvement (often 27.5 years for residential rental property improvements). The IRS looks closely at this distinction, especially with related parties where there's incentive to classify everything as an immediately deductible repair.

Your cousin might want to consider proper legal structuring here. Having some properties in personal name and others in an LLC is creating confusion. He might benefit from putting ALL properties into LLCs (maybe separate LLCs for liability purposes) but then having all of those LLCs owned by a holding company that could elect S-Corp taxation. This way, he gets liability protection for all properties, potential self-employment tax savings on the management portion of his activities, and clearer separation between his rental business and handyman service business.

There's another important consideration here that I haven't seen mentioned - the passive activity loss rules. Since your cousin has a handyman business (which generates active income), he needs to be careful about how rental losses interact with his other income. If he's actively managing the rental properties (collecting rent, finding tenants, making management decisions), he might qualify for the $25,000 rental loss deduction against his handyman income, but this phases out at higher income levels. However, if he's paying his handyman business for work on the rentals, this could actually reduce his rental losses and affect this calculation. Also, regarding the LLC properties on Schedule C - this is definitely incorrect as others have mentioned. LLCs are typically disregarded entities for tax purposes unless they elect corporate taxation. The rental income should still go on Schedule E regardless of the LLC structure. One more thing to consider: if he's serious about building the handyman business, he should consider whether having it work primarily on his own properties might hurt his ability to claim it's a legitimate business activity rather than just a hobby or tax avoidance scheme. The IRS looks at factors like profit motive, time spent, expertise, and success in making profits when determining if something is a business.