Tax implications to convert LTR to STR mid year?

Question

We converted a LTR into a STR September 1, 2022.
Of course i've waited to the last minute to complete my taxes and am struggling with this.
I have completed my taxes for 20+ years using Turbotax - but this is a little confusing - I should have hired an account - but I'm a little late :(

My question is how do I account for this change given it took place mid year?
Since the property would be a LTR for 1/2 of the year and then a STR the remaining part of the year - would I take a portion of the depreciation for the LTR and then add the property to the STR business portion of my Taxes?
If that is the case - what happens to that property in 2023? Would i remove it from my 'rental' property section and just have it under the business portion of taxes?
Any guidance that could be provided would be very helpful!
Thanks,

Patricia Saltzman · Answer

Ok - Sounds good.  It was worth a shot :)Thank you both for your input!

Patricia Saltzman · Answer

Sorry - I just saw your post above :)Given the avg is less than 7 days in 2022- Could this technically be completely classified as a STR for 2022?

Michael Plaks · Answer

No, it's 141 nights divided by actual number of bookings.

Patricia Saltzman · Answer

We closed in May 22 and LT tenant moved out the end of August 22.The property was only rented long term for 120 days.  It took us a couple of months getting it prepared for STR which went live 11/1.The STR was rented for a total of 21 nights in Nov & Dec.That is a total of 141 nights rented in 2022.That would equate to an avg stay of less than 3 days a week.That should allow the STR classification in 2022 correct?

Patricia Saltzman · Answer

Ok - That makes sense!Because the furnishings and various expenses occurred in 2022 - would those be allowed in 2022?Thanks again for your help!

Michael Plaks · Answer

@Patricia Saltzman

Bad news, sorry. You cannot "switch" from LTR to STR mid-year. STR is a determination on an annual basis, based on the average stay in this property across the entire year.

So, in your case, it will not qualify as an STR for 2022.

For 2023, it remains on Schedule E, unless you operate it hotel-style which is rare. Whether or not you need to change depreciation for 2023 is controversial.

Patricia Saltzman · Answer

Doesn't 3115 change the accounting method on all properties and not just this one?

Sean O'Keefe · Answer

Provided you aren't offering "substantial services" with STR then this will get reported on Schedule E for Federal tax purposes. You will need to check LLC filing requirements for each State you have a rental in and the State of incorporation to determine the filing requirements. Substantial services are additional services that you'd do for a guest while they're at the property, such as cleaning (during their stay), tours, providing food, accessible amenities, and subscription services available at the rental.