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Level 1

Vacation loss limitation impacting MAGI

I rent out a room on Airbnb in the house where I also live. I bought the place Sept 2019 and started renting out the room Nov 2019 so I marked that I rent out part of my home and that I converted in 2019. I also marked that I actively participate (own 10%+ and make management decisions).

 

I entered in my days rented and personal use days incorrectly (I thought days rented = days occupied, not days available to rent) such that it was classifying me as a vacation home and showing my depreciation expense to the vacation loss limitation column on the Sched E worksheet. When I went to go back to correct the days rented to be days available to rent, it actually dropped my refund amount. It turns out that doing so was appropriately adding my depreciation expense to my rental losses (i.e., it moved the depreciation amount out of the vacation home loss limitation column and into the reported on Sched E column) now BUT that my MAGI was now above $150k so it said I wasn't eligible for ANY rental losses anymore (i.e., my sched E worksheet and sched E line 22 = 0)

 

I don't understand how days rented can impact MAGI.

 

If I am changing my days rented from 37 to 61 (because that's how many days it was in service) and my personal use days from 15 to 0, shouldn't my MAGI (for real estate losses purpose) remain unchanged and therefore I should be able to take the depreciation expense?

5 Replies
Highlighted
Level 3

Vacation loss limitation impacting MAGI

Ok ... you got a terminology issue ... this is NOT a vacation home and it is NOT subject to the vacation home rules.   Once you converted the room to a rental ( and IF you did NOT use it personally at anytime since it was converted) then your personal use is ZERO days.   This is not a vacation home rental where you use it when there are no renters in the place.   So remove the personal use days.   

 

Next issue is days rented... only enter the number of days it was actually rented.   

 

And for the depreciation you will enter the date the room was ready to be rented ... when it was posted on AirBNB as available.  

 

As you make entries in the Sch E section you may find it easier to prorate the common expenses yourself instead of letting the program do it since the program is really set up for you moving out of the home completely and converting it to a rental and not renting out a portion of the home.   I highly suggest you either upgrade to the LIVE option for one on one guidance to get this set up correctly  OR  seek a local tax professional.   Once you know how to do it and what it should look like you may feel confident enough to do it yourself in the future. 

Highlighted
Level 1

Vacation loss limitation impacting MAGI

Thanks! So I've done all that but it pushes my MAGI above $150k and then my rental real estate losses are $0. Why does adjusting the days adjust my MAGI? It's not clicking for me why 1) when it's classified as a vacation home, which I understand mine is not, my MAGI is below $150k... but 2) when it's classified as a regular rental using the inputs you've provided and others havev adjusted, my MAGI is above $150k.... My net losses are ~$5000 so I want to make sure to deduct.

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Level 3

Vacation loss limitation impacting MAGI

One change can affect many other things ... nothing changes in a vacuum on a tax return.   Best way to see how this is happening is to look at the return using both options to compare them.  

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Level 10

Vacation loss limitation impacting MAGI

Unfortunately, the "vacation home" rules do apply.  Even though that room may be exclusively rental use, the "Dwelling Unit" (which means a complete home/apartment, including a kitchen) is used as a Residence by you.  That triggers the "vacation home" rules.

 

Technically, Critter is correct is saying that you should enter zero personal days and then enter the number of days available for rent.  However TurboTax is NOT set up for this situation, so in order to 'make it work' in the program, you need to enter some personal days.  You need to calculate what percentage of the home is allocated to the rental, then invent numbers to correspond to the percentage.  For example, if it was 20%, you could enter 20 rental days and 80 personal days to get the 20% (using the IRS Method ... 20 rental days out of a total of 100 used days).

 

Even then, it can be problematic.  You need to enter at least 15 rental days, or the program won't let you continue.  And if the space is less than 10% of the home, I don't think you will be able to do it without overrides.  And because it is a partial year, you would further need to manually calculate the numbers you enter to correspond with the partial year of use.   You may consider using a tax professional.

 

Under the "vacation home" rules, you may not be allowed to use some or all of the loss against other income  It will carry forward, and if the rental is profitable in future years, this loss can offset that.

Highlighted
Level 3

Vacation loss limitation impacting MAGI

 I highly suggest you either upgrade to the LIVE option for one on one guidance to get this set up correctly  OR  seek a local tax professional.   Once you know how to do it and what it should look like you may feel confident enough to do it yourself in the future.