Depreciation for Short Term Vacation Rental: business use percentage fluctuates

Forum|Forum|2 years ago
January 15, 2024
3 replies
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After realizing our CPA made multiple mistakes through the years, I am using TurboTax to prepare our individual returns. We have a short-term vacation rental property with furniture listed as a depreciable asset.

Regarding business use percentage for this asset, the percentage changes annually, depending on days rented vs our personal use. Is is allowable to change the business percentage use in TurboTax each year?

For example, in 2022, we recorded 217 fair rental days and 10 personal use days. Would the business use percentage be based on 217/227 or 355/365 (the property is available to rent all year).

In 2023, we recorded 245 fair rental days and 9 personal use days. Slight change in percentages for the year.

Any insight into this topic is much appreciated!

Rental Property

AmyC

Employee

Regarding asset depreciation, you can change the business percentage each year since use does vary. This year, you will enter the asset in the depreciation section and the program will ask the percentage for 2023. The next screen will ask you to verify or enter the correct amount of prior depreciation.

For 2022, I am going to assume the property was held out for rent on all days except when you were vacationing. Work days are not personal days. This would mean 355/365 days were available for rent.

The IRS has Pub 527 which is full of helpful information, if you want to dig in.

There are more comments below which are correct about how to handle the rental property overall and including the number of days for allocation of expenses. [Edited 1/16/24 8:08 am] @msvhughes

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Carl11_2

Employee

Just FYI for clarification:

- Vacant periods between renters do not count as personal use days.

- If you live in the property for the primary purpose of preparing it for the next tenant, those days are not personal use days. This includes living there to update/upgrade the property, as well as to perform or supervise renovations.

Anonymous_

Employee

I believe it would be a simple matter to enter the personal use days in the screen depicted in the screenshot below (in the Property Profile section).

Untitled.png

Carl11_2

Employee

That's actually the way I go, instead of trying to figure percentages.

Anonymous_

Employee

@Carl11_2 wrote:

That's actually the way I go, instead of trying to figure percentages.

If you enter percentages in the program, as suggested by @AmyC, that only has an impact on the asset and not the expenses (as using the property for personal purposes should).

For personal use of a rental property during the tax year, the personal use and rental use days should be entered into the program so that the rental expenses are split appropriately. Even then, the program does not split all expenses as it should.

Finally, note that, with respect to short-term rentals with no personal use, the IRS never has provided guidance regarding how to handle "idle days" (no personal use and no renters). My opinion would be those days count as rental use if the property was actually available for rent all year.

I'm going to page @AmeliesUncle for input on this last point.