converted a garage into a cottage that we airbnb

Converting your garage into a cottage for Airbnb can have several tax implications. Here’s a  guide to help you navigate this process using TurboTax:

Reporting Rental Income

1. Enter Rental Income: In TurboTax, navigate to the rentals section. You can do this by searching for "rentals" and selecting the "Jump to" link. Answer "Yes" to the question "Did you have any income from rentals or royalties?".
2. Property Details: Enter all the necessary information about your rental property, including a description, rental income, expenses, and assets

Deductible Expenses

1. Ordinary and Necessary Expenses: You can deduct expenses that are ordinary and necessary for maintaining and managing your rental property. This includes repairs, utilities, insurance, and property management fees.
2. Capital Expenses: Major improvements, like converting a garage into a cottage, can be capitalized and depreciated over 27.5 years. This means you can deduct a portion of the cost each year.

Depreciation

1. Depreciation: TurboTax will guide you through entering depreciation for your property. This is important for capital expenses like the conversion of your garage

Active vs. Passive Income

• Material Participation: Determine if your rental activity is considered active or passive. Active participation can qualify you for more deductions. 
  • TurboTax will help you assess this based on the time you spend managing the property.

For more detailed information, you can refer to these reputable sources:

• TurboTax: Where do I enter income and expenses from a rental property?
• TurboTax: Rental Real Estate and Taxes
• New Avenue Homes: Tax Implications of Airbnb Apartments or a New Accessory Dwelling