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Level 1

# Short Term Rental

Hi,

I have a few questions regarding depreciation of assets on short term rentals.

1) How to calculate the percentage for depreciation (personal usage vs. rental/business usage)

2) How to calculate depreciation of assets which were purchased before the property was converted to a short-term rental.

Example scenario:  we purchased a second/vacation house in the summer of 2022.  During that year we made some investments on the house to use it as a short-term rental but did not rent it that year.  We made the house available for rent at the beginning of 2023.  During 2023 we spent two weeks at the house and rented it for 6 weeks (the house was occupied for the total of 8 weeks).  Questions:

1) How to calculate the percentage for depreciation/costs (personal usage vs. rental/business usage)

Say, I want to deduct my mortgage interest, depreciate the value of the house itself or some other investments.  Is the ratio as follows:

A.  2/8 for personal costs and 6/8 for rental/business expenses (meaning I would apply 75% of the mortgage interest as a business expense and the remaining  25% as personal and would also use 75% of the value of the house to calculate depreciation).

B. 2/52 for personal costs and 50/52 for rental/business expenses with the rationale being that even though the house was rented for 6 weeks but was available for rent for 50 weeks (certain costs like maintenance, utility bills, mortgage interest, etc., apply throughout the year)

C. Neither of the two

2) How to calculate depreciation of assets which were purchased before the property was converted to a short-term rental.

In our example, say I purchased some furnishings during 2022 (in preparation for converting the house into a short term rental).  Typically, furniture is depreciated over 7 years.  Questions:

A. Can I start depreciating the furnishings in 2023?

B. If yes, what is the depreciation timeframe (6 years or 7 years) and

C. what is the basis of the depreciation?  Do I subtract a 1/7 of the cost (for 2022) and start depreciating using this lower cost?

Similar questions for the deprecation of the house itself, i.e., over how many years and what base value to use.

Thanks for hosting the discussion!

Regards,

-Pawel

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## Short Term Rental

1.  B.  The equation is based on days available to rent.

2.  Residential real estate is depreciated over 27.5 years.  Residential real estate furnishings are depreciated over five years.  Although you may qualify for bonus depreciation if your income is high enough.  You should start depreciating them as of the date they were placed in service (1/1/23) and depreciate the actual cost.

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