Should my rental houses be considered personnel investments or should I form a business that manages property?

Question

I build new houses and remodel existing ones to own and rent out. During the construction process I have expenses uncommon to managing rentals. Even though I take no salary and do as much work as possible on each project, we still have a negative cash flow. After adding up the losses and deperciation, it offsetts my wifes income so we get all of her taxes back. Based on rental rates in our area, we calculate that it will take about 3 years for a property to break even. So we should be turning a profit in tax year 08. To take full advantage of the tax code while depreciating the buildings and then selling them in the future, Is there an advantage to holding these properties as personnel investments or should I form a business that builds and manages real estate?

Answer 1

It sounds to me that if your formed a business, it would be a sole proprietorship. If that is the case, the business income would be declared on schedule C of your personal income tax form.