Bonus depreciation for an Air BNB?

Question

Basit Siddiqi · Answer

From my understanding that would not be eligible for section 179 expense or bonus depreciation.

You may be able to look to see if you can do a cost seg analysis and see if you can depreciate certain assets over a shorter period but its simply the skeletons/drywall - it would not qualify.

Another item to check to see if you have any qualified leasehold improvement. This is eligible for bonus + shorter depreciation life.

One thing of a benefit for an airbnb business is that you normally have to furnish it for people who will live in your space. That is normally eligible for an accelerated write-off.

Ashish Acharya · Answer

@Krisann Mayfield,

@Basit Siddiqi is right. You cannot take bonus depreciation of the property that is depreciated over 20 years. the construction project once complected is depreciated over 27.5 years.  and you cannot take section 179 expense on the real property.

However, since you are handling the project, you can keep the detailed track of the expense and segregate the cost into real property and personal property. The personal property can be taken as bonus depreciation and possible 179.( you can only take sec 179 to the extent of your income so mostly is not doable)

There is no Qualified Leasehold improvement property going forward with new tax reform for section 179 and bonus but something called qualified improvement property. As you are building a place, an expenditure is attributable to the enlargement of the building or the internal structural framework of the building is not as Qualified improvement Property.  Also, the QIP is related to a nonresidential property.

So,

1) construction expense is all capitalized. (if you can keep track of the project expense and cost seg on your own, maybe with help of your CPA, you can write off 100% of some of the cost as a bonus depreciation )

2) All the furniture can be 100% depreciated.

Paul Caputo · Answer

Bonus depreciation only applies to assets with under 20 years class life, which includes tangible personal property at 5 or 7 years and land improvements at 15 years when we're talking about rentals. The actual structure of the garage and apartment above would still be 27.5 year rental property which doesn't qualify for bonus depreciation. That being said there could be a bunch of tangible personal property inside the apartment depending on what you do and probably not much if any inside the garage. Outside there could be some land improvements but again probably not much with what you've described. If you're using the garage for personal use there would be no depreciation on the garage and you'd only be looking at the apartment.

The specifics on this are more complex than you'd think, that's why there are engineering firms like mine that do cost segregation to figure out the depreciation. Take the lighting for example: you could literally have two identical lighting fixtures and one would be a 27.5 year asset not eligible for bonus depreciation and the other one is a 5 year asset eligible for bonus depreciation. The difference is the first one is primary lighting and the other is secondary or decorative lighting. Same goes for the baseboards on the wall over the flooring they can go either way depending on how they're installed. Flooring can go either way too: if it's permanently attached like nailed in hardwood or grouted in tile it's 27.5 year, if it's not permanently attached like tacked on carpet or floating laminate it's 5 year.

With all that being said there probably wouldn't be a lot of benefit in something this size, but if you're curious to see some numbers feel free to PM me.

Bonus depreciation for an Air BNB?

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