Short Term Rental and 121 Exclusion

1 Reply

Dear Friends,

We purchased a 3 family house (with one title and one address) few months ago. We intend to occupy all 3 units in the house as our primary residence for more than two years.

Some of my family travel and spend time in different countries for several months in a year. We intend to AirBnB 2 units out of 3 partially during the 2 years when my family is traveling. Infact we have already started doing that.

We are reasonably comfortable that we will be able to sell the house after 2 years for more than 500K capital gains. We want to take full 121 exclusion on it as it is our primary home.

What are the implications of renting 2 units out of 3 on AirBnB for several months in a year on 121 exclusion?

  1. Can we still treat the whole house as a primary residence for 2 years for 121 exclusion?
  2. If 2 units out of 3 are rented on AirBnB, how do we calculate number of days we have used the whole house as our primary home? Please make note that only the partial house is rented for short term.

If there are any CPAs who can help us with my real-estate portfolio and handle scenarios of sales, construction, long term rental and short-term rental then please let me know.

Thanks

Calculating between personal/ business use can be tricky and I'd recommend finding a tax professional to set it up. 

The short if it is you likely won't be able to utilize the full 121 exclusion. You're going to have some allocation of business vs. person use- (your 1/3 units will be 100 personal use- 121 qualified)  and since you're using some of the same spaces for business/personal you're also going to have personal use days and rental days of the same spaces as well.