Schedule C -property depreciation

[sunny131]

I have a a business which owns a single family house and rents it for short term rentals. I would like to add depreciation deduction for my property(owned by business)

I am using turbo tax home and business, when I select real estate option under asset deductions, it gives three options:

non residential real estate

qualified improvement

specific qualified improvement

technically, none of the options is a fit.  Closest option is non residential which would depreciate the property on 39 years vs 27.5.

what is the correct way of adding this deduction?

[DianeW777]

A rental activity is entered under Rental Properties and Royalties and is not treated the same way as the business. If your business is a sole proprietorship then you report the rental house as follows (either on Schedule C, or on Schedule E).

First let's discuss an exception for reporting the income. Tax laws are full of exceptions, but the 14 Day rule, sometimes called the "Masters exception" because of its popularity in Georgia during the annual Masters golf tournament—is the most important for anyone considering renting out a vacation home. Under this rule, you don't pay tax on income you earn from the short-term rental, as long as you:

• Rent the property for no more than 14 days during the year AND
• Use the vacation house yourself 14 days or more during the year or at least 10% of the total days you rent it to others.

Most people who use Airbnb are running a business and by default are required to file under Schedule C if there is "substantial services".

If you’re providing hotel-like perks such as regular cleaning or maid service (in excess of 10% of the rental cost), fresh linens or towels, in-room coffee, transportation, or sight-seeing, you’re providing substantial services, and that means you'd file Schedule C.

• If you provide substantial services that are primarily for your tenant's convenience, report your income and expenses on Schedule C. If this is the case, then you use the nonresidential real estate like a hotel and/or bed-and-breakfast.  This will be the 39 year recovery.

  • Should I Report My Rental on Schedule E or Schedule C

  • Where do I enter Schedule C? (39 year recovery period)

To record the income on Schedule E:

1. In TurboTax, search (upper right) for rentals (plural) > Press enter > select the Jump to..... link at the top of the search results.
2. Answer Yes to the question Did you have any rental or royalty income and expenses in 2021 for property you own?
3. Follow the on-screen instructions as you proceed through the rental and royalties section.

   • Please refer to 10 Tips for Airbnb, HomeAway & VRBO Vacation Rentals for details.

     Additional Information

   • Where do I enter income and expenses from a rental property?
   • How do I handle capital improvements and depreciation for my rental?

This will allow you to select the correct 'residential rental property' and use the 27.5 year recovery period. Under the business activity itself you will only see nonresidential real estate, if there is no substantial service.

@sunny131

[Edited: 03/04/2022 | 11:27a PST]

[taxmodern]

Short-term rentals also have to be depreciated over 39 years instead of 27.5.  In TurboTax, this is done by choosing the option for "commercial" as the type of rental, and "non-residential real estate and improvements".    Rentals that have an average stay of less than 30 days are considered to be non-residential rentals under the tax code regarding depreciation.  (There is a different standard of 7 days or less when determining if it is passive or non-passive income, which is a separate tax matter.)

Yes, it's true that this is not at all clear in TurboTax.  TurboTax currently doesn't provide proper guidance for short-term rentals.