Joint Venture Schedule C Rental Activity

The quick answer is no PS will not split it for you. You should put half on Sch C for the summer daily rentals and half on Sch E for the monthly rentals. You will have to enter the asset w/s for depreciation on each C and E, and put 50% in as the amount to be depreciated.

Assuming you meet the tests as stated by Phoebe.

Phoebe is referring to a husband - wife joint real estate venture. It is properly reported on 2 schedule Cs rather than 1 schedule E and there is a box to check in Part I line 1 of schedule C to indicate that it is a joint real estate venture not subject to SE tax. If the average rental period is less than 7 days then you would not check this box since the income would be subject to SE tax.

>>>Does the IRS really care about this? If so, why are so many CPAs filing on Schedule E instead of C for their clients?<<<

I suspect that most CPAs (myself included) didn't know that you could suppress the SE tax calculation on Sch C. 

If I correctly understand your situation (a dubious assumption), the US tax is the same either way. If so, there is no reason to amend just to pick up style points from the IRS.  Maine could be a problem, but only if the tax differential is material -- I'd say, in the hundreds of dollars.

 OK. I am finding errors in almost every answer. Try this, and the other answerers can pick me apart if I haven't got it right.

All past years are losses, subject to passive loss rules. The only thing you'd be adding is the sales tax expense - which is a federal expense. Presuming this amount is not terrible large the cost of preparing amendments will be more than the throw away sales tax losses. If not, amend using the procedure below.

In ProSeries - to get it right for now and the future:

Considering that the info provided by questioner shows rental use and not a personal vacation home or 2nd residence, I am taking this as a schedule E item and sch C is not involved.

In the Proseries E worksheet - check the box - 1b "jointly owned" and if applicable the box for material participation.

Now you will create (on one page):

One Rental Expense Statement - in any program not Proseries. I recomend excel. You will list all expenses excluding depreciation that apply to the one property.

One Rental Income Statement - with two parts:

Part 1. will state "Monthly Rental - Not Subject to Maine Sales Tax" and  "Length of Time - Months" = X  rental income.

Part 2. will state "Itinerant Rental - Subject to Maine Sales Tax" and  "Length of Time - Days" = Y rental income.

Now use the formula function, or a calculator, to attribute the Expense statement total, by length of time, to Part 1 and Part 2, and pay the Maine sales tax. Remember that if the Maine sales tax is paid after the year closes, then the current year expense is from the prior year taxes due. Be sure to track for the future.

Back to ProSeries - Create 2 Sch. E's, fill in title and check boxes as I stated above, label each E with the Property name and the label of either part 1 or 2. Enter income for each the same way. Enter allocated expense amount for each, on line 18.

line 18. Other expense, label - use ***Special trick **** Right click on the box and select "add/edit note". Switch to your prepared statement, select it, right click and choose copy (or use any copy command). Go back to the open ProSeries note and right click and "paste". Check the box to "print this note as part of tax return for filing". Remember to put note in both E's but you can set only one to print, or print both and include one with Maine return, as appropriate.

Enter depreciation in each E, being sure to check 50% box.  Add the sales tax expense in the Line 16b Other tax expense for the Itinerant E.

All correct. Include federal copy with Maine tax return. 

 Phoebe: With all due respect, I think you should discuss this further in your group. Generally, it's not a good idea to "choose" to do the return "wrong" because there actually are good reasons for the right way. All tax law (from the IRS)  is based on a simple clear intention. I know people don't want to believe that but if you find the intention you will find the right way to handle it. Occasionally the IRS screws it up temporarily but very soon either they, or Tax Court, fix it. (There are always a few exceptions.)

I believe that I am right, Sch. E is the correct form and Sch. C is not. In this case I have two points.

1. Just because the client has a definition doesn't make it the legal one according to income tax law - this is an ordinary single rental, not actually a "joint venture" business.

2. The reason for the new "husband and wife joint venture" rule is specifically to allow both to receive credit to their social security account.

http://www.irs.gov/businesses/small/article/0,,id=97732,00.html 

On May 25, 2007 the Small Business and Work Opportunity Tax Act of 2007 was signed into law and affect changes to the treatment of qualified joint ventures of married couples not treated as partnerships. The provision is effective for taxable years beginning after December 31, 2006.

..... This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based.

GEEEEEZ! Isn't it enough to just get the damn tax right?

You're right Phoebe - Congress is as clear as mud ........ but the IRS is the only government agency that tries real hard to interpret things clearly to a specific intention - give us a portion of your work after the real cost it took to earn it and if you didn't have to work to earn it, you must be retired, so keep more. The rest of Treasury......not so good........SEC.... clearly influenced by high priced lawyers with lifetime perks (oh, that would be Congress)........ most regulators - the public goods are our buddies retirement....... and progressively worse. So, I do appreciate the IRS. Not that I'm prepared to let them get away with anything either.

And Archie, your point is exactly right - the important thing is exactly to get the damn tax right! People can continue to demand less corruption and more professionalism in the Congress that they vote in or out. But people should not have to pay taxes they don't owe out of fear or confusion; or pay less than is due, like the rest of us law abiding citizens have to, by cheating.

I'll study a little deeper in case I missed something in the actual new code. But a word about instructions - they are just the first draft. While they are meant to get you doing it right, over the years I've seen that they take a bit of public testing to get clear, and form instructions are never fully complete in themselves. And sometimes it's a public service to point that out to the forms drafters - very, very politely - but I've done it many times and watched them change the instructions over the course of a season or up to 3 years (sometimes more). The reason is - those forms have to get from the last session of Congress (October) to the software developers (used to be bulk printers) and available by the beginning of January. That's a tight turn around worthy of the best entrepreneurs.