Question

Rent out primary residence in the summer - Depreciation

Forum|Forum|4 years ago
January 24, 2022
1 reply
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TaxAsker01 described the following situation-

We rent out our primary residence in the summer as a short term rental. We rent out the whole house, and rent our own short term rental elsewhere. Thus, 100% of the house is on rent. In 2021, we rented it 36 days, so roughly 10%.

When TaxAsker01 inputs depreciation data, with the 36 days it was rented and assuming it ended 8/31/2021, would they answer "Yes" or "No" to the question "Have you used this item 100% of the time for this business since you acquired it" on the TurboTax Screen "Tell Us More About This Rental Asset" as shown below?

If it is answered as "No", TurboTax defaults to 9.86% business use for 2021 (36 days) and will then only calculate 1 month of depreciation on 9.86% of the cost basis.

If it is answered "Yes", TT will depreciate 100% of the cost basis for the 36 days it was rented (adjusted for MM convention), which appears more appropriate.

If there was personal use within the 36 days of rental, it seems like that is what this question would be intending to cover.

Carl11_2

Employee

When renting out property short term, "any" period of personal use during the year counts against you for expenses and depreciation. Doesn't matter if the period of personal use was outside the period of business use either. See IRS Publication 527 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf paying attention to the "Example" in the 3rd column of that page. Note that the period of personal use is "outside" of the period it was available for rent.

B

barrons185aAuthor

Thanks, Carl.

Got it - Total Expenses before and after the rental definitely have to get allocated to personal use, whether for a vacation home like in this example or for a personal residence rental.

The example didn't mention depreciation, but on page 6 col 3 of the same document it states "you can't depreciate ...

Property placed in service and disposed of (or taken out of business use) in the same year."

This wouldn't apply to the vacation home in the example, but in TaxAsker01's situation where they are converting their personal residence to a rental for 36 days and then reconverting back to personal use for the rest of the year, would that mean you would not input an asset into TurboTax or set the business use at zero, or is there another way it would be handled? Pub 946 on Depreciating Property says it has to be permanently withdrawn by the conversion back to personal use to be ineligible for depreciation, but I didn't see anything in the TT questionnaire about this.

Thanks so much for you help.

Carl11_2

Employee

In the assets/depreciation section, just give the listed asset a cost basis of zero.

Take note that if you are doing this every year, then this may not be acceptable. What you should do in that case is classify the property as a rental for the entire tax year and show the true cost basis of it. Then you'd declare rental days and personal use days. The total of those two can not exceed 365. Then you enter expenses for the entire tax year and the program will pro-rate based on the numbers provided.

Again, I really don't know if it would acceptable to do what you want to do every year and never depreciate the property. It may raise flags for all I know.