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Business income or rental income??

Forum|Forum|4 years ago
February 13, 2022
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I am sole proprietor of a mobile home park business which operates on land inherited by my sisters and I. I rent lots to folks that own their own homes...I do not rent homes, just the land. Is this considered business income or rental income? I maintain the Park's wells and water distribution to these lots, the landscaping of the 10 acres where these 27 lots are located, the septic system, electrical...all things to allow them to utilize the lot. The more I read, the more confused I get. I have no employee's, take a monthly draw and started out as business income but not sure if that is correct. Please someone clarify my income status.

Not A Product Question

Best answer by ColeenD3

The difference between business income and rental income is whether or not services are provided. Simple maintenance of the property is not providing services.

An example of a business would be running a motel where you would provide laundry services. Another might be a BnB where you provide meals.

ColeenD3Answer

The difference between business income and rental income is whether or not services are provided. Simple maintenance of the property is not providing services.

An example of a business would be running a motel where you would provide laundry services. Another might be a BnB where you provide meals.

T

TriciaNMAuthor

so the wells, pumps, septic, electrical, and maintenance of these quite costly things are deductions/expenses for offsetting the "rental" income? OMG...that means it has been done wrong for over 30 years...my parents and then my sister before me. Back to the drawing board...changes in QuickBooks maybe/maybe not, but definitely need to redo what I have done in Turbo Tax.

ColeenD3

The new sole proprietorship, under my name, just became established 4/1/2021. This will be my first filing so there is no history of schedule E, with me. I believe it became a sole proprietorship under my father’s name in 1987, he passed in 1998. My step-mom was sole proprietor until her passing in 2010. My step sister was sole proprietor from 2010 until 3/31/2021, when she sold to me for $1. I established my sole proprietorship with the IRS and NM effective 4/1/2021. The difference is that all 3 previous dba’s had the property solely in their name. When my sister quit claimed the property to me, I turned around and deeded the property into all 3 of us, my step sis, my natural sis, and myself. They want nothing to do with the business so I lease the property for $1 from the JTWROS deed holders. In doing this, I surmised from my own research, that the income was no longer single owner rental income. Rather that it was business income on leased property. I know just enough to be seriously dangerous so don’t 100% trust my interpretations on IRS guidelines. I just want to start off on the right foot.

Your property is a rental and belongs on Schedule E. Please see this HELP article. Just because previous owners treated it as a Sole Proprietorship, that doesn't mean that it was correct.

As far as the lease goes, it is not a true lease. There is no profit motive involved. A profit motive is an essential part of Schedule C.