Percentage of Vacation Rental expenses that are deductible.

[valuecare]

I have a new property that was used exclusively as a vacation rental starting in 2022. I was only able to rent it for 201 days. It was not used personally at all.  Since it was rented 55% of the year, can I only deduct 55% of my Schedule E deductions, or can the full years expenses be deducted?....Thanks for your help!

[Anonymous_ · Accepted solution]

Personal use days are counted from the day the property is available for rent and thereafter.

EX 1: You started renting the property on June 1st (converted to rental use), it was available for rent through December 31st, and you had no personal use thereafter. Typical rental expenses would be deductible in full for the May 1st through December 31st period (including depreciation).

EX 2:  You started renting the property on June 1st (converted to rental use), it was available for rent through December 31st, but you used the property for personal purposes (vacation) for a total of 33 days during that period. You would have to allocate typical rental expenses between the period of rental and personal use. The exceptions being expenses such as commissions, advertising, and repairs made during the period of rental use.

[valuecare]

 Sometimes I'm not the sharpest tool in the shed, so please bear with me as I seek to clarify so I understand.   I started renting the property as a vacation rental on Airbnb & VRBO on January 1st , and it was available for rent through December 31st.  I had no personal use during the entire year. The cabin was rented rented a total of 201 days from January 1-December 31, ( 55% of the year). So was even though the cabin was not rented for a total of 164 days throughout the year, since I did not use it at all personally, the typical rental expenses would be deductible in full for the entire year, January 1st through December 31st period (including depreciation). Is my last statement correct?

Quick follow-up question: I have owned full time rental properties for the last 30 years, and am not used to having a loss on my taxes for them. Is it normal to show a significant loss the first year a property is used as a vacation rental?... Thanks for your patience with me!...😎

[DMarkM1 · Accepted solution]

Yes.  Your first statement is correct.  You can deduct the full year of expenses since there were zero days of personal use during the full-year rental time.  

For the second question, it depends.  Whether 1st year or 5th year, it not unusual to show a loss on a rental property that only collects rental income for part of the year.

[Anonymous_ · Accepted solution]

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@valuecare wrote:

Is it normal to show a significant loss the first year a property is used as a vacation rental?... 😎

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It is relatively "normal" to show a significant loss the first year on a rental property but note that the rental at issue here would not be classified as a typical vacation rental for the 2022 tax year as there was absolutely no personal use. 

Section 280A is the section of the Tax Code that disallows certain expenses connected with the rental of vacation homes and imposes loss limitations.

See https://www.law.cornell.edu/uscode/text/26/280A