VRBO Tax Deduction to Offset SFH Rental Income

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VRBO Tax Deduction to Offset SFH Rental Income

Dan O'Meara
Investor · Willmar, MN · Member since 2015 · 4 posts · 0 votes

Hello,

I currently have five SFH that I rent out full time in Minnesota. I recently purchased a lake cabin (6 Bed) that I intend to VRBO. None of the assets are in an LLC, so I am directly responsible for taxes.

I understand the liability about not having an LLC, and yes I will consult my tax professional before taking action. I am just trying to brainstorm ideas and options.

Here are my questions:

1.  I am thinking of purchasing an RV ($17,000) so I can offer the option of additional bed space.  The RV would be at an extra cost and parked in the yard next to the cabin.  Would this qualify as a deduction for the cabin VRBO, or would it fall under its own RV VRBO tax entity?

2. Would this deduction allow me to offset income earned from the other SFH?

Thanks in advance

Dan 

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    6y
    Originally posted by @Dan O'Meara:

    Hello,

    I currently have five SFH that I rent out full time in Minnesota. I recently purchased a lake cabin (6 Bed) that I intend to VRBO. None of the assets are in an LLC, so I am directly responsible for taxes.

    I understand the liability about not having an LLC, and yes I will consult my tax professional before taking action. I am just trying to brainstorm ideas and options.

    Here are my questions:

    1.  I am thinking of purchasing an RV ($17,000) so I can offer the option of additional bed space.  The RV would be at an extra cost and parked in the yard next to the cabin.  Would this qualify as a deduction for the cabin VRBO, or would it fall under its own RV VRBO tax entity? 

    2. Would this deduction allow me to offset income earned from the other SFH?

    Thanks in advance

    Dan 

    1) It will fall under its own tax entity if you create one and rent it out via that. If you don’t intend to create one and you are purchasing this to just add the rental income to one of your rentals, it’s could be treated as the same activity as that rental. 

    2) You might/might now be able to write off depending on how you structure the rental activity. You need tax advisor on that. The RV's having actual unloaded weights of less than 13,000 pounds are 3-year property as defined by section 168(c)(2)(A) of the Code, and the RV's having actual unloaded weights of 13,000 pounds or more are 5-year property as defined by section 168(c)(2)(B). 

    See Rev. Proc. 83-35 and Private Letter Ruling 8630022

    If you are able to writeoff, it would offset your other passive rental income. 

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  • Dan O'Meara
    OP
    Investor · Willmar, MN · Member since 2015 · 4 posts · 0 votes
    6y

    Thanks for the info, this helps.

    Basically here is my plan:  I own a lake cabin that I rent out for $1200 a week.  I would purchase an RV (less than 5,000lbs) that I would offer along with the rental for an additional $300 a week.  This would add sleeping capacity for 5 more people along with the 6 the cabin already holds.  I would not rent out the RV unless someone rents the cabin.  

    Thanks

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Dan O'Meara

    It's important that you work with a tax advisor who understands what you're doing and can advise you.

    STRs have unique treatment under the passive activity loss rules and General Depreciation System.

    An RV is considered a "dwelling unit" under 280A case law.  Be careful regarding personal use.

    However -- just because an RV is considered a dwelling unit under 280A does not make it real property.  You'll want to consult your advisor regarding the dynamics of the rental agreement to ensure your return doesn't get too complicated.

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  • Dan O'Meara
    OP
    Investor · Willmar, MN · Member since 2015 · 4 posts · 0 votes
    6y

    Thanks!  I will definetely check with my tax advisor

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