Attaching rental property expenses to specific times of year

[bigrodent]

We own a beach rental property and it is rented only during summer months.  During these months, the bills are very high.  Electric can be $700/month, Pool cleaning, cable/internet, maintenance calls, etc...    During the off-season, we manage everything ourselves and the electric is very low.   Hypothetically, if we use the house for the same number of personal days that we rent for, we need to split these expenses across the business and personal.  The personal side only allows for mortgage-related expenses.   Is there a way to focus the in-season expenses on your taxes such that it goes directly against the income that it helps to generate?    The current ratio of personal to rental days doesn't afford an accurate representation of the business side of the rental property.

Thanks!

[Carl]

You may or may not be able to do this legally. It depends on a number of factors.

When you say it's a rental during the summer months only, is it always rented to the same person for the entire summer? How many months are we talking about here in total, anyway?

Do you provide your rent paying tenants services that are "directly beneficial" to the tenant, on a recurring basis? For example, daily room cleaning services. or a continental breakfast every morning.  Or bed turn down services every evening. (Yard service *does* *not* *count* for this.)

Do you charge your tenants by the night? The week? The month?

[bigrodent]

Thanks.  It is a weekly beach rental to a different guest every week for 20 weeks from May to Oct.  No personalized services.   Just higher utilities, pool services, more maintenance from usage/breaks during that part of the year.   

[Carl]

No personalized services.

Unfortunately, that means this does not qualify as a SCH C business. Therefore it's reported on SCH E.

You can claim that you converted it to a rental on say, 1 Jun of the tax year and then converted it back to personal use on say, 1 Sept of each tax year. That allows you to claim all expenses actually incurred during those three months, with a few exceptions that you will have to pro-rate yourself.

Property Taxes - You'll have to manually pro-rate your property taxes between the SCH E and SCH A. With conversion to a rental and back to personal use in the same tax year, the program can not correctly figure that for you.

Mortgage Interest - You'll have to figure this manually between the SCH E and SCH A too, for the same reason mentioned above.

Property Insurance - You'll have to pro-rate this manually also for the period of time it's a rental. Property insurance is not deductible for the period of time it was not a rental. So nothing for insurance can be claimed on the SCH A at all.

Additionally, you'll have to work through each individual asset listed in the assets/depreciation section to confirm the in service date is correct, and to manually enter the date you converted it back to personal use.

Finally, when done with the tax return (including e-file and acceptance by the IRS) you'll need to print it, because there are documents you will need for next year's taxes that will not be imported.

First, you'll need to print the IRS Form 8582 which shows your carry over losses. If there is no 8582 present, then that just means you don't have any carry over losses.

Next, you'll need to print both of the IRS Form 4562's. The two I'm talking about both print in landscape format. One is titled "Depreciation and Amortization Report" and the other is titled "Alternative Minimum Tax Depreciation". You'll need these forms to enter the correct amount of "prior depreciation already taken" when completing your 2020 tax return next year. The total of prior depreciation is determined by adding together the amounts in the "prior depreciation" column and the "current year depreciation" column.

Now all the above is a lot of work on your part, and leaves you *HIGHLY* prone to user error which has the potential to get you audited. So make absolutely certain you keep receipts for *everything* in case that ever happens. WHen it comes to dealing with the IRS, here's the three golden rules.

1) You are guilty until proven innocent.

2) The burden of proof is on the accused (that's you!) and not the accuser.

3) If it's not in writing, then it *did* *not* *occur*.

[Critter-3 · Accepted solution]

The program has 2 places to enter the expenses ... ones that are common to both rental & personal (like the annual insurance, re taxes, mortgage interest, etc. ) which will be prorated based on the rental/personal use ratio by the program automatically  AND   the  rental only  expenses (where you can make those summer rental specific cost entries).  You will need to do all the math yourself and keep good records incase the IRS audits the return.  Non common expenses like utilities incurred for the personal portion are NOT required to be entered since they have no effect on the Sch E ... carefully review the worksheets when  you are done before you file ... make corrections if needed. 

[Critter-3 · Accepted solution]