Bonus Depreciation with primary residence/room rentals

Member since 2020 · 7 posts · 2 votes

I am doing some research to explore if you can do a Bonus Depreciation on a home you reside in and rent out (half the home) on Airbnb to traveling professionals.

And would doing this be worth it / Looking to reinvest return into a new rental property.

Thoughts?

1 Reply

73 views

Most Popular Reply

Michael PlaksPro Member

Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes

Quote from @Kaylea Blackburn:

@Basit Siddiqi I am aware of 280A limits. How would it impact me in this case?

I don't think you are, actually. Section 280A prohibits you from taking a loss on a mixed-use property which yours is. Since you cannot take a loss anyway, bonus depreciation is useless. All it does is it increases the loss that you cannot take.

$25,000 exception is irrelevant here, because Section 280A stops the loss entirely.

The quote from Pub. 527 is also irrelevant. IRS Publications are full of errors and do not carry any legal weight. This is a typical example where an IRS publication misinterprets the law, albeit in your favor. Section 280A does indeed have an exception for a "portion of a unit which is used exclusively as a hotel, motel, inn, or similar establishment."

However, the interpretation of this phrase given in Pub. 527 is (unfortunately) wrong. The real definition can be found in Regulations 1.469-1T and numerous court decisions on this issue. The key is providing "substantial personal services similar to hotels" - i.e. daily maid services, meals etc. Merely renting out a room is not a "hotel", contrary to what Pub. 527 implies.

Bottom line: bonus depreciation is useless for renting out rooms.

3 Reply

See this reply in the discussion

9 Replies

Jump to latestLatest

Sort by

Account Closed
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2y
Hey Kalyea, its going to be tough to get bonus depreciation on a primary residence. If you were able to prove material participation and use the short-term rental loophole, you may have other tax savings you can take advantage of. This is only possible if you rent out the home primarily as a rental. checkout this write-up I did on the short-term loophole to learn more: https://www.biggerpockets.com/forums/617/topics/1161394-call...
0 Reply
Kaylea Blackburn
OP
Member since 2020 · 7 posts · 2 votes
2y
@Account Closed thanks for sharing the article. Very informative.
I don’t believe I qualify for the STL. However I do fall under the lower income exception.

I rent half the home to traveling nurses who are booking for 3 month stays at the moment. I am the main manager and spent at least 250hrs on it this year.
“Limited losses allowed for landlords with modest incomes. If your total income (combined for spouses) is under $100k, you can offset up to $25k of it. If your income is over $150k, you can offset nothing. Between $100k and $150k, the $25k ceiling is phased out in a straight line”
Maybe bonus depreciation isn’t the right route?

1 Reply
Account Closed
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2y
Quote from @Kaylea Blackburn:

@Account Closed thanks for sharing the article. Very informative.
I don’t believe I qualify for the STL. However I do fall under the lower income exception.

I rent half the home to traveling nurses who are booking for 3 month stays at the moment. I am the main manager and spent at least 250hrs on it this year.
“Limited losses allowed for landlords with modest incomes. If your total income (combined for spouses) is under $100k, you can offset up to $25k of it. If your income is over $150k, you can offset nothing. Between $100k and $150k, the $25k ceiling is phased out in a straight line”
Maybe bonus depreciation isn’t the right route?

Thank you for the additional context Kaylea. That is correct, bonus depreciation likely is not for you. The limited losses clause you pointed to can help offset some income, which in your situation seems to be best. I would have to have one of our tax professionals take a look to advise for certain tho :) typical accountant answer I know :P
0 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
2y
You want to be aware of the limtations of 280A which limits a business that is conducted from your personal residence.
[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
View Page
1 Reply
Nate MeekerBusiness Member
Real Estate CPA | California · Member since 2020 · 543 posts · 251 votes
2y
@Kaylea Blackburn It is possible. IRS Pub 527 states "Example. You rent a room in your home that is always available for short-term occupancy by paying customers. You don’t use the room yourself and you allow only paying customers to use the room. This room is used solely as a hotel, motel, inn, or similar establishment and isn’t a dwelling unit."
The CPA Realtor 569 Reviews
Website View Page
0 Reply
Kaylea Blackburn
OP
Member since 2020 · 7 posts · 2 votes
2y
@Basit Siddiqi I am aware of 280A limits. How would it impact me in this case?
0 Reply
Kaylea Blackburn
OP
Member since 2020 · 7 posts · 2 votes
2y
Quote from @Nate Meeker:

@Kaylea Blackburn It is possible. IRS Pub 527 states "Example. You rent a room in your home that is always available for short-term occupancy by paying customers. You don’t use the room yourself and you allow only paying customers to use the room. This room is used solely as a hotel, motel, inn, or similar establishment and isn’t a dwelling unit."

In my case, I am renting as a mid-term rental. Does this make a difference, due to it not being classified as short term?
0 Reply
Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
2y
Quote from @Kaylea Blackburn:

@Basit Siddiqi I am aware of 280A limits. How would it impact me in this case?

I don't think you are, actually. Section 280A prohibits you from taking a loss on a mixed-use property which yours is. Since you cannot take a loss anyway, bonus depreciation is useless. All it does is it increases the loss that you cannot take.
$25,000 exception is irrelevant here, because Section 280A stops the loss entirely.
The quote from Pub. 527 is also irrelevant. IRS Publications are full of errors and do not carry any legal weight. This is a typical example where an IRS publication misinterprets the law, albeit in your favor. Section 280A does indeed have an exception for a "portion of a unit which is used exclusively as a hotel, motel, inn, or similar establishment."
However, the interpretation of this phrase given in Pub. 527 is (unfortunately) wrong. The real definition can be found in Regulations 1.469-1T and numerous court decisions on this issue. The key is providing "substantial personal services similar to hotels" - i.e. daily maid services, meals etc. Merely renting out a room is not a "hotel", contrary to what Pub. 527 implies.
Bottom line: bonus depreciation is useless for renting out rooms.

3 Reply
Sean O'KeefePro Member
CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
2y
@Michael Plaks bringing it with this post!
[email protected]628-241-0888
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.