Vacation Home Converted to Short Term Rental

[TexiRican]

Let's say I purchased a vacation home in 2006. The sale price was $110K, $10K of which was attributed to "land," and between the down payment, mortgage, and closing, I had to bring $120K to the table (round numbers to make it simple). Our family grew up spending our vacation time there all these years. Kids grew up and away.... [wipes tears]

In 2024, I started renting it out as a short-term rental through AirBnB and the like because now I spend my vacation time in my kids' basements so I can see my grandchildren. So, the condo was put "in service" in 2024. What do I put as my cost basis? Would it be my purchase price from 2006?

Many thanks for your expert replies.

[DavidD66]

Yes.  It would be your original purchase price plus any closing costs (other than taxes, interest, HOA fees, etc.) plus the costs of any improvements.  Improvements would be renovations you did.  I would also included assessments by the condo association for improvements.   

[TexiRican]

Thank you so much! Just to clarify, I wouldn't have to calculate depreciation for the years we used it for personal use, correct? I only start calculating (ahem... let TurboTax calculate) depreciation starting in 2024, which is when we started to rent it out.

[MaryK4]

Correct, depreciation begins when you place the rental "in service".  @TexiRican 

[TexiRican]

Okay, so then follow up to this, @DavidD66 and anyone who knows. In the 19 years before it became a short-term rental there have been several assessments: building-wide window replacements, exterior painting, parking resurfacing, tennis court resurfacing, pool tile replacement....(making you wanna buy into a condo yet? 🙄).

Do I include all those pre-in-service-date assessments as part of my "cost of acquisition", or do they go someplace else? And where do I report future assessments when the time comes? We have a lovely $4k roof assessment coming up.

[RobertB4444]

It depends.

Any of the assessments that were for routine maintenance are just expenses that went away.  Any of the assessments that added value to the property added value to your condo so they are added to the basis.  

You'll have to go back through all of those assessments and figure out which ones added value and which ones were just repairs.  And then add all of that to what you originally paid for the condo to get your basis.

@TexiRican