Level 6

Airbnb - residential depreciation or commercial

Forum|Forum|2 years ago
April 8, 2024
4 replies
34 views

Hi, client has part of the home (dettached) that airbnbs. Does not provide substantial services nor qualifies as RE professional so I think sch E is appropriate. However, is the property depreciated over 39 years or 27.5 years? Is any short term rental over 39 years or are there are other things to consider? Thank you.

Tax Talk

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strongsilence

Level 10

Are you self-employed? Do you have staff?

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Terry53029

Intuit Community Champion

In general, class life for Airbnb's is 27 1/2 years. If rented under 7 days OR substantial services use schedule C. Schedule E for no substantial services OR longer than 7 days.

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taxmo

Intuit Community Champion

(This is supposed to be a reply to Terry53029's answer. It looks like the replies aren't showing up under the right post currently.)

You're thinking of something different. The depreciation period is determined by § 168, which results in the correct answer which is it's 39 years if the average stay is 30 days or less.

What you're thinking of is § 169 (the passive loss rules), which is unrelated to determining the depreciation period. Under § 169, a rental is potentially non-passive if it has an average stay of 7 days or less (or less than 30 days with "significant personal services"), and also they materially participate, then it is non-passive. But it still goes on Schedule E, not C. The difference is it can bypass form 8582. To do that, choose the non-passive option in your tax software.

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Terry53029

Intuit Community Champion

Whether it is on schedule C or E has nothing to do with deprecation. Class life of all residential rentals is 27 1/2 years. Airbnb has very strict rules to join, and this posting is about Airbnb, and not motels, as Airbnb do not allow hotels, and motels to join. Therefore according to instructions to their members (prepared by Ernst & Young LLP) most members will use schedule E to report rental income, as they usually only rent their home with no services.

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TaxGuyBill

Level 15

Short term rentals that are 30 days or less (or is it "less than 30 days"?) are depreciated over 39 years because it is "transient" housing.

You are correct, no services means Schedule E.

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Terry53029

Intuit Community Champion

@TaxGuyBill that's why I said "in general" as we usually don't have all the info.

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ptax255Author

Level 6

Since I'm getting slightly different answers - what is the IRS definition of transient? Is it strictly # of days rented? Less than 30 days or less than 7?

This is what I could find dated 2007. But what does "generally" mean? What's an example rented less than 30 days but depreciated over 27.5 years?

“Lodging facility” is defined in section 856(d)(9)(D)(ii) as a (l) hotel, (ll) motel, or
(lll) other establishment more than one-half of the dwelling units in which are used on a
transient basis. The term “transient” is not defined in section 856 or the regulations
thereunder. However, for other purposes of the Code, a renter has generally been
treated as “transient” if the rental period is less than 30 days.

https://www.irs.gov/pub/irs-wd/0840028.pdf

Also, this from EY and Airbnb says generally 27.5 years.

https://assets.airbnb.com/eyguidance/us.pdf

Thank you!

BobKamman

Level 15

That's an interesting question. I think most Airbnb rentals are less than 7 days, so I think it's obviously "transient." However, there seems to be an 80% rule, and the question is whether you count the entire property, including the part where the taxpayer has residential personal use. There is an example in some IRS publication that says for office in home, it's 39 years, unless your home is in an apartment building that you own and rent out other units for residential use, and then you get to use 27.5 years. This seems to derive from the last part of Section 168(e):

(2) Residential rental or nonresidential real property.

(A) Residential rental property.

(i) Residential rental property. The term "residential rental property" means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units.

(ii) Definitions. For purposes of clause (i) --

(I) the term "dwelling unit" means a house or apartment used to provide living accommodations in a building or structure, but does not include a unit in a hotel, motel, or other establishment more than one-half of the units in which are used on a transient basis, and

(II) if any portion of the building or structure is occupied by the taxpayer, the gross rental income from such building or structure shall include the rental value of the portion so occupied.

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