Should I enter a trailer park under one Schedule E column or under multiple Schedule E columns on US tax return?

Question

It seems like common advice for when to consider two units part of the same property for purposes of the Schedule E, is that they are separate if and only if they have separate property tax. So, two units in a duplex or a house with a little house behind it on the same lot are often considered one property, and so occupy a single Schedule E column, but neighboring houses that happen to share a property owner are considered separate properties, and listed in separate columns of the Schedule E.

My problem is with a trailer park where the land is taxed as a whole, but six different trailers are also taxed individually. The rule of grouping units as distinct properties according to how they are taxed becomes less clear, as they are taxed individually and as a group. We own both the trailers and the land.

So, has the IRS issued any guidance on whether there is a preference? Do they prefer them to be grouped under a single column, listed separately, or does the IRS not care which approach is taken?

If they don't care, do they care if you take an approach different than in prior years, such as group the park in a single column when the trailers were listed individually in prior years?

The instructions for Schedule E do not seem to give any guidance on what exactly constitutes a "property", so I don't really know where else to look on this.

Any help would be greatly appreciated!

Answer 1

I haven't found any particular definition recommended by the IRS either for what exactly constitutes different "property". In general, I assume that means that they don't have a particular preference one way or the other.

The main (and yes, very generic) guidance that stuck out to me is this statement at the end of the General Instructions for Schedule E:

Recordkeeping

You must keep records to support items reported on Schedule E in case the IRS has questions about them. If the IRS examines your tax return, you may be asked to explain the items reported. Good records will help you explain any item and arrive at the correct tax with a minimum of effort. If you do not have records, you may have to spend time getting statements and receipts from various sources. If you cannot produce the correct documents, you may have to pay additional tax and be subject to penalties.

That is to say, in general when reporting anything on one's taxes, somewhere in one's mind should be "What would be the easiest way to prove to somebody that these numbers are correct?" And so, if all your books and records treat them as one property, then I'd report them that way. And if your recordkeeping treats them as all separate, where you track utilities and maintenance and rents and whatnot as all separate entities, then I'd report them that way. As long as you can back up what you're claiming to be the case with reasonable data, I don't think you'll run into any trouble with the details of how it was broken out. Or, if they don't like it, they'll tell you what to do for next time, but you wouldn't owe any additional taxes or penalties if the total tax due is correct.