Tax and business structuring for Airbnb new construction?(Owner Occupied)

[Josh176]

This is my first post, we are so excited to be part of the Airbnb hosting community! 

My fiancé and I will be completing construction on our Airbnb nestled in the mountains south of Salt Lake City this fall

This is bran new construction(on recreationally zones property, not a traditional residential neighborhood), long term about 3\4(minimum) of the property will be dedicated to hosting the other 1\4th will be our year around permanent living space. 

Long story short I'm trying to figure out how we can write off as much as the construction(including furniture and appliances) related costs as part of a business expenses as possible.

Right now we do NOT have a business or business license and laws on AirBnb in our area still a little greyish(very common in the area), I was curious as to what kind of business I could create that wasn't specifically classified as a "rental unit" that would still allow us to use these tax breaks yet not set off any flags at the county who currently uses a don't ask don't tell policy. 

Were not looking to avoid paying local taxes and fees or somehow "game the system" we just want to run an amazing Airbnb catering to dedicated outdoor recreationalists, pay our fair share and be left alone by the local authorities. 

Thanks in advance and kind regards 

[Jeff158]

@Josh176 I'm at the other side of the big pond so no idea for your area, personally I would register as a B&B and not even mention advertising on airbnb.

The problem to watch out for is your tax situation if you ever decide to sell, professional advice would be your best coarse of action.

[Josh176]

Thanks Jeff!

Registering as an Bed and Breakfast opens up a whole can of worms(here) we would prefer to avoid for now.

We will certainly be speaking with a tax attorney\lawyer, and yea I realize were in an odd situation being its new construction was just hoping maybe someone has run into a similar situation to ours.

Kind regards 

[Pete28]

You depreciate the construction value of the property as you would a rental over 27.5yrs - take a look at IRS schedule e or read about tax deductions for rental property. You also can depreciate flooring, furniture, appliances etc so keep track of all expenses. You would also deduct a % (based on how much you rent out)  of cost of property tax, loan interest, WSG, electric, cable etc. 

[Tracey---Bryan0]

Perhaps create a business that offers travel or recreational experiences.

As far as deductions go, they are usually in major categories, and they don't necesarily check the exact items against your declared business type. Deductions also only come in to play with your income tax, not usually county or city taxes. As long as deductions are resonable and necessary for doing business, they should be allowable. If you are audited, they can ask about more specific details about costs and purchases. You can operate as a sole propietor (and not a corp) and still itemize deductions to reduce your taxable income, but you will also owe self employment tax, which is chunky. 

Obviously a good accountant would be super helpful and can confirm how it all works. This is just some of what I have learned from running my own businesses through the years. Hope it helps a little.

[Josh176]

Thank you so much Traci, you kind of read my mind as I was concidering open the business as a "Tour Guide Service" that just HAPPEN to throw in "lodgeing" as part of our local guide services.

Would some of that "self employment tax" be returned to me at the end of the year?

"Deductions also only come in to play with your income tax, not usually county or city taxes."

Thats also very helpful

[Tracey---Bryan0]

I wish Uncle Sam would return Self Employment Tax 🙂 That would be awesome.

It's basically you having to pay into your own Social Security, whereas if you were employed by someone else, they would be paying it for you.

[Rebecca181]

@Josh176 Consult with a knowledgeable tax specialist. And many are NOT knowledgeable about short term rentals / Airbnb's. So make sure they really do know their stuff in this area. I found someone excellent at the local H & R Block, she had really done her research. I have 1/3rd acre and my situation is very similar to yours. You will have Capital Gains issues when you sell, depreciation recaptures, etc - Decisions you make now the first year you do your taxes will affect you for years to come, so do not spare any expense consulting with a professional and getting it right the first time. You can't go back and change it once you file. You also are NOT a Schedule C unless you provide 'Special Services'. Most ABBs are Schedule E. Even CPAs will tell you to file Schedule C, and unless you meet certain criteria, they are wrong. NOLO Press has a good book out on all of this, if you need the name, let me know, it was VERY helpful. 

[Pete28]

Good to hear no schedule c - I have read mixed opinions (as an innkeeper etc you could be c). I would think the IRS will clarify at some point. 

On the depreciation side, I will be lucky to be alive at the end of 27.5 yrs and upon inheritance the next of kin can reset the fair market value and begin depreciating again 🙂

I have another full time rental property so it is somewhat interesting, if a little morbid. Would like to acquire another so kids will have one each, then less risk of squabbling over my final intent. I think I may have put them off Airbnb though...

[Josh176]

Very good advice, yes that is my my primary concern is getting off on on the right start so I'm starting over again in the future or stuck in an undesireable situation!

Yes I would love the name of that book if its not too much trouble

We do plan on offering alot of services but all those "services" will be rolled into the cost rental and not add on, I don't want to be in the situation of "selling food or drink" and the complications that come along with it.  

[Rebecca181]

@Josh176 Be careful with the additional services - You may not charge extra for them, but if they are obvious via your listing description or your reviews, and if you were to be audited, those services would be visible to the IRS and then you would be dinged on not filing as a Schedule C.

The Schedule E allows you to file either as a business (for profit) or as passive income (no profit or operating at a loss). You also can file a form saying that you need three years to decide, based on whether you make profits or not. And even though ABB might not file a 1099K if you do not meet the IRS criteria for filing, assume that every single year could be audited, including years a 1099K was not filed, and report your earnings accordingly. ABB makes it very easy - You just go to your Transaction History, and then 'Gross Earnings' - They have already deducted the service fees from your gross, and if they collect and remit taxes on your behalf, those are also already deducted from your gross earnings (I checked this very carefully). So the gross earnings would be what you report, and you do not deduct service fees. At least, that's how my report showed, but you might want to double check yourself. 

Here's the link to the book - I bought it on Amazon. It is comprehensive and I showed up at H&R Block with my receipts all entered into all of the deductible categories - We got my taxes done very easily and now I have the spreadsheet for ensuing years. When I had questions about the book I messaged NOLO on their FB page and I always heard back within a couple of days. https://store.nolo.com/products/every-airbnb-hosts-tax-guide-arbnb.html

[Debbie264]

This is a great topic and I've read a lot of good things. Can anybody recommend a vacation rentals Savvy tax person in the Tampa Bay area?

[Pete28]

This is actually not bad

https://www.hrblock.com/pdf/Tax-Information-for-Hosts1-4-16.pdf

[Rebecca181]

@Debbie264 Based on my own experience, H&R Block understands how to file on short term rentals, but you will want to specifically ask for someone very experienced in this area - Not someone just plugging in numbers on a computer screen.