Rental expenses prior to in service date

[Tyler Klarner]

I have a seen a view posts on this topic but want to get an exact answer for my situation if possible.

I’ve seen posts saying that you cannot use the de minimis rule for expenses that occurred prior to the property in service date. My goal is to use the de minimis safe harbor to deduct expenses for furnishing my Airbnb.

My scenario is a bit complicated. I bought a house to be my primary residence that has a second dwelling that I have always planned to use as a STR. The STR is ready to go besides needing some furniture and a STR permit. Is there a scenario that my Airbnb portion of my house could be considered in service before I advertise it? As in, if I get my STR permit would that count it as being in service and thus I could use the de minimis rule?

Any help on this topic would be greatly appreciated!

 

[Stephen Nelson]

I think you can't use the Reg. Sec 1.263(a)-1(f) election if you buy the furniture in (say) April but don't place the STR into service until May. But I defer to any of the cost segregation specialists here if they think differently. (Those guys seem like the experts in this domain.)

On a side note, this is a great example of the sort of issue ChatGPT can help you think through.

Here for example is its summary conclusion when I ask it about this issue and then also ask if using a Section 179 election or Section 168(k) bonus depreciation provide workarounds:

Even though §263(a) safe harbor isn’t available pre–business start, the taxpayer still gets the lion’s share of the deduction in the startup year via §179 and §168(k), assuming:

• The short-term rental qualifies as a Section 162 trade or business,

• The property is placed in service during the tax year, and

• The taxpayer has enough trade/business income to absorb the §179 deduction (or is okay carrying it forward).

BTW the full analysis ChatGPT provides when you ask it about this is actually quite lengthy with numerous cites to the relevant regulations, statutes and court decisions.