If the family owns multiple rental properties and materially participates in the management of the properties, they are more likely to be considered business assets. Page 21 of IRS Publication 334 elaborates on the criteria for filing Schedule C, indicating that Schedule C is reserved for real businesses and not casual rental income:If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales.
Rent you receive from real estate held for sale to customers is subject to SE tax. However, rent you receive from real estate held for speculation or investment is not subject to SE tax.
Real estate dealer
Hotels, boarding houses, and apartments. Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for payday loans direct lender Ashland occupancy only. An example of a service that is not normally provided for the convenience of the occupants is maid service. However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants’ convenience. The IRS treats rental activities as passive activities even if the taxpayer materially participated in the activity, unless the taxpayer is a real estate professional. The term real estate professional is defined on page 15 of IRS Publication 527 as:
For example, if the family owns a property which it rents to the business, that property is reported as an investment asset on the FAFSA because it is owned by the family, not the business
Real estate professional You qualified as a real estate professional for the tax year if you met both of the following requirements.More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer’s outstanding stock, or capital or profits interest.If you file a joint return, do not count your spouse’s personal services to determine whether you met the preceding requirements. However, you can count your spouse’s participation in an activity in determining if you materially participated.Real property trades or businesses. A real property trade or business is a trade or business that does any activity with real property.
Material participation Generally, you materially participated in an activity for the tax year if were involved in its operations on a regular, continuous, and substantial basis during the year. For more information, see Publication 925. If the business is incorporated (e.g., C corporation, S corporation, LLC), the significant services requirement does not generally apply. Incorporating the business avoids many questions about whether it really is a business or not. However, the rental property must be owned by the business in order to be excluded, as the small business exclusion only applies to the business and its assets. The small business exclusion does not apply to assets that are managed by the business but not otherwise owned by the business. If the deed to the property is in the family’s name, it is a personal asset and must be reported as an investment asset on the FAFSA. If the deed is in the name of the business, then it can be excluded on the FAFSA if the small business exclusion applies.