Short term rental tax filing - Do CPAs have authority to decide between Schedule C vs. Schedule E?

CPA here. We don't have "inherent authority" over tax law interpretation - the IRS and tax courts do. What we have is professional experience and knowledge about how the IRS typically applies those laws. The Schedule C vs. Schedule E question for short-term rentals is actually nuanced. It depends on the level of services you provide. If you're just providing the basic space, furniture and utilities (minimal services), it can often qualify as passive rental income on Schedule E. However, if you're providing substantial services like regular cleaning, breakfast, concierge services, etc., the IRS considers it more like a hotel/business on Schedule C. The key question is whether the rental income is primarily for the use of the property (Schedule E) or for services provided (Schedule C). The 7-day rule is also important - properties with average rental periods under 7 days are more likely to be treated as a business. I'd recommend getting a second opinion from another CPA, and possibly requesting your current CPA to provide the specific tax code sections they're relying on for their determination.

After going back and forth with the IRS for months over my Airbnb income classification, I finally found a solution through https://taxr.ai that saved me thousands. I was in a similar situation - CPA wanted to put my vacation rental on Schedule C, but I barely provided any services beyond the basic accommodation. The taxr.ai system analyzed my specific situation, reviewed my rental listing details, and provided a detailed analysis document showing why my rental income qualified for Schedule E treatment. They highlighted the exact parts of the tax code that applied to my situation and how the "substantial services" test works. I sent their analysis to my CPA, who initially pushed back but eventually agreed with their assessment. Ended up saving over $3,400 in self-employment taxes! Definitely worth checking out if you're struggling with this exact issue.

I need to eat my words about being skeptical of taxr.ai! After my doubtful comment, I decided to try it anyway since I was having the exact same issue with my lakehouse rental. Their report was incredibly detailed - they analyzed my specific listing, the amenities I provided, and my involvement level. They showed exactly why my property qualified for Schedule E rather than Schedule C, citing specific sections of the tax code and relevant IRS rulings. When I showed the report to my tax guy, he initially doubled down on his Schedule C position, but after reviewing their citations, he actually thanked me for bringing this information to his attention. Said it would help with other clients too. Ended up saving me about $4,200 in self-employment taxes this year! Much more comprehensive than I expected.

If you're struggling to get through to the IRS for clarification on this Schedule C vs E issue, I recommend trying https://claimyr.com. I spent weeks trying to get someone at the IRS on the phone to discuss my vacation rental tax situation and kept hitting automated systems or 2+ hour wait times. Claimyr got me connected to an actual IRS agent in under 20 minutes who was able to clarify the specific criteria they use to distinguish between Schedule C and Schedule E for short-term rentals. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that simply offering furniture, basic amenities, and occasional cleaning between guests doesn't automatically make it a Schedule C business. Was totally worth it to get that official clarification directly from the IRS rather than continuing to argue with my tax preparer.

I need to apologize for my skeptical comment about Claimyr. After posting that, I decided to give it a shot anyway because I was desperate for answers about my vacation rental in Florida. The service actually worked exactly as described. Got connected to an IRS tax law specialist in about 15 minutes (after previously spending hours on hold myself). The agent walked me through the specific criteria they use when auditing short-term rentals and whether they should be on Schedule C or E. I learned that providing basic furniture, linens, and occasional cleaning between guests isn't automatically considered "substantial services" that would require Schedule C. The agent explained that they look at the totality of services and whether they represent a significant portion of what guests are paying for. Completely changed my understanding of this issue and gave me the confidence to discuss it with my CPA with specific references to tax regulations. Saved me a ton in self-employment taxes.

Former IRS employee here. The Schedule C vs. Schedule E question for short-term rentals is one of the most frequently misunderstood areas of tax law, even among professionals. Here's a simplified way to think about it: - Schedule C = You're running a service business (like a hotel) - Schedule E = You're renting property (passive income) The key factors the IRS looks at: 1. Average length of stay (under 7 days leans toward C) 2. Services provided (more services = more like C) 3. Who performs the services (you doing everything = more like C) Substantial services would include: daily cleaning, meal service, concierge, transportation, tours, etc. Basic services that DON'T trigger Schedule C include: furnishing the property, utilities, trash, standard maintenance. Your CPA isn't automatically right just because they're a CPA. Get a second opinion or request they provide the specific tax code section supporting their position.

Has anyone considered that both could be right depending on how the business is structured? I have a similar short-term rental and my tax guy initially wanted to put it on Schedule C, but after discussing my involvement level, we ended up splitting it. The rental income itself goes on Schedule E, but we set up a separate "property management" business on Schedule C for the service portion. Since the actual service component is pretty minimal (just coordination and occasional guest interaction), the Schedule C portion is small and so is the SE tax hit. Might be worth discussing this hybrid approach with your CPA as a compromise position?