Tax categories on a vacation home expenses

6 Replies

Hello tax gurus, How are you folks doing? 

Background: In this year, I bought a house in CA for an vacation rental in Airbnb and VRBO. Its going good so far. I spent close to 25K in setting up as an vacation rental. Setup expenses includes furniture, appliances, cookware, repair services, and some supplies such as soaps, toilet paper, tissue paper, etc. 

Supplies are recurring expenses, every 2 or 3 months depends when they run out. On top of it, there are monthly standard expenses such as utilities, maintenance issues and/or supplies. 

Question:

How these expenses will be accounted in tax filing? Will all these expenses be shown on Supplemental income and loss form (Schedule E) or some where else? I want to understand how these expenses will impact my overall income in 2019, and in the future if some of the costs are going to carry over? 

Any insight is appreciated. 

ST rentals are kind of a limbo item of rentals. 

By default, yes schedule E. 

Any of your expenses incurred prior to it being in sevice that made it "ready" to be rented- like renovations and furniture likely need to be capitalized and depreciated. 

Whether you provide substantial service and how long your average stay is will both come into play with the tax treatment on this property. 

There is a lot of "it depends" related to ST rentals so I would recommend talking to a tax pro to make sure it's all being handled correctly.

Thank you for your insight. I will approach my tax guy, eventually to file taxes. 

Good to know that all expenses before the setup is considered as capital. 

It is interesting to know that level of services and length of stay also make a difference. The average length of stay would be 3 days. No specific services other than home is fully furnished and equipped with all kitchen utensils to cook, etc. 

@Pandu Chimata

Agree with @Natalie Kolodij that you should make sure your tax professional is comfortable with STRs.

STRs have unique treatment under the passive activity loss rules and unique treatment regarding depreciation...

They should also not be reported on Schedule C unless substantial "hotel-like" services are rendered, as noted above.

Originally posted by @Pandu Chimata :

Thank you for your insight. I will approach my tax guy, eventually to file taxes. 

Good to know that all expenses before the setup is considered as capital. 

It is interesting to know that level of services and length of stay also make a difference. The average length of stay would be 3 days. No specific services other than home is fully furnished and equipped with all kitchen utensils to cook, etc. 

 You should also approach them NOW to begin tax planning for the year so you don't have surprises. You also want to make sure you will have your documentation in the order he will need it in. He may have suggestions for you based upon your specific situation.

Thank you folks. I just engaged a tax consultant to get advise on this situation.

I spoke to tax consultant and his opinion is to file Schedule C, not schedule E since Airbnb considered as hotel business.