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pthulson
New Member

If I spent in 2019 on construction and furnishings for an AirBnB that hasn't opened, do I deduct those expenses now, defer them to 2020, or something else?

 
2 Replies
MinhT1
Employee Tax Expert

If I spent in 2019 on construction and furnishings for an AirBnB that hasn't opened, do I deduct those expenses now, defer them to 2020, or something else?

Expenses incurred in constructing and furnishing your future AirBnB are not deductible. They are added to the cost basis of your dwelling which can be depreciated when your AirBnB is put on the market. 

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Anonymous
Not applicable

If I spent in 2019 on construction and furnishings for an AirBnB that hasn't opened, do I deduct those expenses now, defer them to 2020, or something else?

the business hasn't opened so no deduction until 2020.  in addition, some of the pre-opening expenses (start-up expenses) will be subject to IRC code section 195.   what it says is that if you elect,  and the expenses don't exceed a certain amount, they are deductible in the year the business starts.  if they exceed a threshold then they are subject to amortization over a 15 month period.    failure to make the election bars any deduction for these expenses. 

 

per the code

Allowance of deduction If a taxpayer elects the application of this subsection with respect to any start-up expenditures—
(A)the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of—
(i)the amount of start-up expenditures with respect to the active trade or business, or
(ii)$5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and
(B)the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.

 

the election is made by following the rules,  there is no requirement to attach an election statement to your return.

 

not all pre-opening expenses are start-up costs

start-up expenditure

(1) Start-up expenditures The term “start-up expenditure” means any amount— (A) paid or incurred in connection with— (i) investigating the creation or acquisition of an active trade or business, or (ii) creating an active trade or business, or (iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and (B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred. The term “start-up expenditure” does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.

 

 

for example, new appliances and remodeling costs would not be 195 costs.

 

if you provide material services such as laundry, housekeeping, meals and the like, then the reporting is done on Schedule C and any net profit is subject to self-employment tax.  

 

 

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