We have a transient short-term rental (AirBnB style, not hotel). Do I understand correctly it is considered a non-residential rental real estate? If so, MACRS 39 yr?

[bertexie]

Turbotax is only showing residential real estate 27.5 yrs..... if my understanding is correct, how to I technically chose 39 yr in Turbotax?  Thank you

[tagteam · Accepted solution]

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@bertexie wrote:
Turbotax is only showing residential real estate 27.5 yrs..... if my understanding is correct, how to I technically chose 39 yr in Turbotax?  

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That choice is not available because you are entering the property on Schedule E when, technically, according to Treas. Reg. §1.469-1T(e)(3)(ii)(A), you should be entering the property on Schedule C (i.e., it is treated as a business, not a rental activity).

Per Treas. Reg. §1.469-1T(e)(3)(ii): .....an activity involving the use of tangible property is not a rental activity for a taxable year if for such taxable year 

(A) The average period of customer use for such property is seven days or less....

You can enter the property as a rental on Schedule E (as many do) but the recovery period will be 27.5 years.

[AmeliesUncle]

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@tagteam wrote:

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@bertexie wrote:
Turbotax is only showing residential real estate 27.5 yrs..... if my understanding is correct, how to I technically chose 39 yr in Turbotax?  

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That choice is not available because you are entering the property on Schedule E when, technically, according to Treas. Reg. §1.469-1T(e)(3)(ii)(A), you should be entering the property on Schedule C (i.e., it is treated as a business, not a rental activity).

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I disagree.  It is not a rental activity FOR PURPOSES of Passive Losses.  That does not necessarily mean it is not a "rental" for other purposes and needs to goes on Schedule C.  The way the tax return is set up, Schedule C is for a business that is usually subject to SE tax.  And unless the activity is providing "services" to the tenants, it would not be subject to SE tax.

So I think Schedule E is correct (and 27.5 years).

[tagteam]

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@AmeliesUncle wrote:
I disagree.  It is not a rental activity FOR PURPOSES of Passive Losses.  That does not necessarily mean it is not a "rental" for other purposes and needs to goes on Schedule C.  

Actually, I am on your side; I believe that the "7-day or less" rule is applicable only with respect to passive losses and, absent substantial services rendered to the renters, I would report this as a regular rental property on Schedule E.

However, if indeed a taxpayer does have some sort of "vacation hotel", then that is a business and should be reported on Schedule C with a recovery period of 39 years.

Also note that the passive activity rules still apply even if the activity is reported on Schedule C, otherwise there would be no need for a "material participation" box on the form.

[Carl]

Just want to point something out for clarification.

The *AVERAGE* period of use is 7 days or less

So if I rent to one person for 15 days, and then rent to 6 other people at different times for 4 days each, that makes my "average" period of use less than 7 days.

Can-o-worms opened. Go! 🙂

[tagteam]

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@Carl wrote:

Just want to point something out for clarification.

The *AVERAGE* period of use is 7 days or less

So if I rent to one person for 15 days, and then rent to 6 other people at different times for 4 days each, that makes my "average" period of use less than 7 days.

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I am unsure of the point, considering there is nothing more here than simple math. 

Regardless, it obviously works in the other direction; if I rent to 6 people for 4 days each and one other person for 30 days, that makes my "average" period of use greater than 7 days. 

To take things to the extreme, if I have a vacation rental that is rented on a weekly basis (Saturday to Saturday) and rent 30 weeks to 30 different parties and also have two parties that rent 2 weeks each, my average period of use is also greater than 7 days (and that is an actual, real-world, example).