When can I start deducting short term rental expenses?

Question

I have an apartment unit that will go online as a short term rental, starting April 1st. I am currently living in the unit and will have to purchase furnishings, supplies, and services to have it operational. When can I start writing off expenses? Do I need to start advertising the unit now while making it ready, in order to write off the start up expenses?

Nicholas Aiola · Answer

@Wesley Myers It will likely be added to the property's basis and depreciated over 27.5 years beginning on the in-service date in 2021.

Paul Sandhu · Answer

In the same calendar year you incurred the expenses.

John Underwood · Answer

You should check with your CPA.

I beleive once you are advertising you can deduct expenses.

Nancy Bachety · Answer

Normally, when you place it in service you can expense certain items. Buying furnishings is ongoing and always an expense if it’s used in the property. Ask @Nicholas Aiola. He’s the BP whiz.

Wesley Myers · Answer

@Nicholas Aiola awesome info. We’re in the same boat want to make sure I’m clear. We spent about $10k in 2020 getting ours ready. It should be live and available this March. I can claim the $10k I spent in 2020 on my 2021 tax return?

Nicholas Aiola · Answer

@Padric Lynch Remember, in service = ready and available. If it's advertised now that it won't be available until April, it won't be in service until April.

Padric Lynch · Answer

@Nicholas Aiola In my case, if I advertise now that my unit will be available in April (i.e. listing it on Airbnb), I will be able to deduct expenses that I am paying for to prep it?

Nicholas Aiola · Answer

Thanks for the mention @Nancy Bachety !

@Padric Lynch As Nancy mentioned, expenses after the in-service date - when it is ready (livable) and available (advertised for rent) - are deductible as operating expenses; expenses leading up to the in-service date will likely be capitalized and added to basis.

You'll want to make sure you and your CPA are on the same page when filing your tax returns so as to avoid any misclassifications.

Marc Rice · Answer

@Padric Lynch

I am not a CPA but Section 179 expenses is what you want.

When can I start deducting short term rental expenses?

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