VRBO rental income and expenses

[osbornedj]

Can anyone give me some input on why Turbo tax seems to adjust my expenses to the amount of my rental income.  For example in 2022, i had approx 15K$ in rental income.  The house was rented about 35% of the time throughout the year and i was there for three weeks working on the house doing improvements, repairs, etc.  I had the AC fail and some other expensive repairs and the total for everything for the year came out to be around 22K$ out of pocket (including all the categories, tax, insurance, repairs, maintenance, advertising, travel, etc).  So when I put in these numbers, Turbo tax adjusts the total out of pocket to the 15K$ number.  It is like it will not let you deduct more than you received in income?  It is like it will not let you take a loss more than 0$, when in fact i had a 22k-15k = 7$K loss.

[CSKcpa56]

From the information supplied it's hard to determine what is going on. IRS Pub 527 discusses rental units. 

The following would need to be answered:

1. is the VRBO your home you rent out or is it a place you bought specifically to rent on VRBO. If so when is it available to rent? 100% of a year or 50%? 

2. Where are you reporting the activity - are you using Schedule E to report it

3. How many days was the place available compared to when you were there? 

4, there are limitations on losses from rentals - if you are not a real estate professional you're limited to $25K per year.

If you don't rent out the property a lot then your expenses might be limited to the amount of the income.

If there are expenses you incurred which were capital improvements to the property (like siding, landscaping, new air, etc.) those might not be currently deductible unless you use depreciation form 4562. 

[Vanessa A]

It sounds like you are falling into the category of personal use property instead of a rental property. 

In order to claim a loss on rental property, it would not be able to be considered personal use.  It would need to be considered a rental property, otherwise your loss is limited to income received. 

Based on your numbers, if it was rented for 35% of the year that would be 128 days.  If you spent 21 days there and entered it as personal use, then you would be over the 10% allowed. Since you were there using the property for more than 12 days, this is limiting your loss which is the reason TurboTax is making it personal use property. 

"You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for a number of days that’s more than the greater of:

1. 14 days, or
2. 10% of the total days you rent it to others at a fair rental price."https://www.irs.gov/taxtopics/tc415

[tagteam]

@osbornedj 

Was there any personal use of the property?

Note that days spent on the property when you are engaged in repairing, cleaning, or maintaining (but not improving) the property are not considered to be personal use days.

No one is going to be able to assist you without more details.

[osbornedj]

yes, thanks everyone for the help with this.  Indeed this seems to be the problem and i need to get my exact numbers as i was just estimating earlier.   I do have all the dates and numbers.  In fact i was there longer... i was there working about 3 weeks non stop on the property, by myself, from sun up till sun down.  Good to hear this isn't considered personal use as i felt like a contractor - it certainly was not vacation.  Then my kids and wife arrived for about 10 days and we saw relatives but i continued to work on the property some during this time... although no where near to the degree that i was previously.  I will get the exact numbers.  I would estimate the time when the family was there that i worked on the property 35% of the time.

[tagteam]

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@osbornedj wrote:

I would estimate the time when the family was there that i worked on the property 35% of the time.

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As long as you (or one of the owners) is working on the property (substantially full time) for the purposes of repairs, cleaning, maintenance, etc., personal use by other family members is irrelevant; the days working are still not counted as personal use days.

[osbornedj]

Thank you so much for sharing your expertise, this seems like a tricky issue so i want to get the exact numbers so i do it correctly.  I rented the house on VRBO for a total of 110 days.  I was there working 16 hours a day on the house by myself for 19 days.  I then stayed another 16 days with my wife and kids there and still worked on the house but i also saw relatives and spent some time with the kids.  I worked somewhere between 50% of the time and 35% of the time on the house during these 16 days.  I can tell by the receipts i have during this time so i know what projects i completed and about how much time they took.  The conservative estimate would be 16 days at 35% effort is 10 days.  At 50% effort it is 8 days.

10% of the 110 VRBO days is 11 days.  So no matter how you look at it i was under the 10% of the total guest rental number of days and i can pretty much prove it with project lists and receipts.

i will adjust these numbers into the system but i have a question.

do i count the days i worked there as days someone was staying?

would the total days the house was occupied be 110+19+6.  or do i just ignore the 19 and 6 days i was there working.

thanks for the help,

[tagteam]

@osbornedj 

Section 280A provides that a day of personal use does not include any day that the taxpayer is engaged in repair and maintenance on a substantially full time basis for any day.

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

Therefore, you have to examine your involvement in repairs and maintenance on a day-to-day basis. For instance, if you spent 40 hours working during a certain Monday-Friday period that does not necessarily mean you have 5 days of personal use. You could have put in 10 hours of work each day on Monday-Thursday, which would make Friday a day of personal use. 

Further, provided you worked doing repairs and maintenance on the property, substantially full time, on any given day, it is irrelevant that other members of your family were using the property for personal use on those days.

[osbornedj]

i entered these days and am under the limits that would put me into using it for personal use too much and limit my deductions.  However, it still tweeked the actual numbers down a bit, not by a large amount as before where it would only let me deduct up to the rental income i had received.  

I now am able to enter the actual numbers and it shows a 6K$ loss for the year which is about right, mostly because i had to purchase a new AC unit at 6.5K$.  I am going to depreciate this asset, i entered the numbers and it allows around 5.8K$ depreciation.  

do i need to do anything for future years regarding this depreciation?  i was under the impression depreciation is something i will need to enter every year for some time??

[tagteam]

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@osbornedj wrote:

do i need to do anything for future years regarding this depreciation? 

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TurboTax will continue to track your depreciation deductions (as well as accumulated depreciation) as long as you use the program and transfer in your return from the prior tax year.

[osbornedj]

thanks so much but i need a clarification.

The schedule E worksheet asks for days rented for fair rental value.  I put 116 for this which is the number of days i actually had guests, but it was rent ready all year except when i was working there as a contractor and when i had a few days of personal time (but still working some).  I have 10 days personal use for the year (it is actually probably less than this but close).

At any rate, the house was available to rent on VRBO the entire year except for the time i worked there and had personal time there. 

I worked as a contractor for 25 days, i had 10 days personal time, i rented the place to guests for 116 days but the rest of the year 214 days the place had to be ready for folks to come in and stay since it was a short term VRBO rental.  I had to keep it clean, ready, housekeeping on standby, etc.  

To me it is very misleading... i think the numbers should be that the house was rented or rent ready for 116 + 214 days = 330 days and i had contractor working 25 days and 10 days personal time.  

is this correct, can you comment please.

[tagteam]

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@osbornedj wrote:

To me it is very misleading... i think the numbers should be that the house was rented or rent ready for 116 + 214 days = 330 days and i had contractor working 25 days and 10 days personal time.  

is this correct, can you comment please.

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Yes, and I completely understand your point but, unfortunately, it does not work that way according to federal income tax law and regulations.

If you had zero personal use (I mean absolutely none) causing the house to be for rental purposes only, your assessment would be correct.

However, since there was personal use, Section 280A comes into effect and you have to report the number of days actually rented at fair value, the number of days of personal use, and the balance is simply neither one or the other and does not count in your favor despite the fact that the property was "available for rent" (in the typical sense of that word applicable to rental real estate).

See https://www.irs.gov/publications/p527#en_US_2022_publink1000285456 (note examples)

[osbornedj]

great, thanks for clarifying.  For those that read this thread, just to explain... when you have personal use mixed with a short term rental what happens is the expenses you have incurred that year will be scaled down by an amount generally based on a ratio between personal and rental business use.  In my case the stay to personal rate was like 92% and the expenses allowed went down about 1000$ out of a possible 16000$, so they allowed about 15$K.  Not exactly sure how those numbers are scaled but that is how my scenario turned out.  I was able to put the largest purchase of 2022, a new AC system at $6500 as an expense but i was able to enter that as a depreciation and i got roughly $5800 in depreciation credits.

My understanding is if i use turbo tax next year and incorporate my tax forms from last year the system will automatically handle this depreciation going forward.

[tagteam]

@osbornedj You are correct, but two points:

1) If the percentage of personal use varies from year-to-year, then the percentage rate will need to be changed in the property profile section of the program as well as the assets/depreciation section of the program.

2) Typical rental expenses are required to allocated between personal use days and days actually rented, but some expenses are allocated entirely to rental use, such as property management fees, advertising, commissions, and any other expenses directly related to rental use.

[osbornedj]

Thanks for the help, you have made a big difference.  i think i have one final quesiton.  My VA VRBO house had losses last year (as well as this year).  i am not sure that this years return turbo tax 2022 properly incorporated my return from last year and may have not included some carry over losses.  How do i ensure my 2022 turbo tax return incorporated the return from 2021???

For example, on my 2021 return for this rental on my Virginia worksheet, when i open my last years return, i see part II regular income/loss item 7. says  passive disallowed loss (carry over to next year) = -5320.

I do not see that number on my 2022 return on the virginia worksheet.  I believe i may not have incorporated the return from last year properly.  Isnt this value supposed to be on my 2022 return somewhere.

the reason i have losses in 2021 and in 2022 is basically because it is a VRBO in a rural county with a low rent with only moderate activity but more over i just inherited the house and there have been lots of repairs and expenses getting the VRBO going.  Can you please advise??  I believe this is my last big question on the VRBO.