I rent out a room on Airbnb in my primary residence house. Do I deduct property depreciation on Schedule E?

[beebee32002]

I rented a room for 30 weeks out of the year. It's passive income so I'm filling out Schedule E.  Since I also live in the house, it is also my primary residence for 365 days out of the year. Will I get property depreciation as if this was a normal rental property? If so, what would be the cost basis? Thanks! 

[Carl]

Typically, if you start renting and stop renting in the same tax year, you are not required to depreciate. However, if you do that every tax year, eventually the IRS will catch on.  So if your intent is to do the same thing in 2022, then you are required to take depreciation.

[DianeW777]

You will get depreciation for the portion of the home you rented based on the number of days for Schedule E. 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).

Either way you will use the square feet of the room rented divided by the total square feet of the entire home to arrive at the percentage used for rental purposes.  You will need to know personal days of use and rental days at fair rental value (FRV) of use if you enter 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.