Fair Rental Days? - Schedule E

[Boris]

I changed tax preparers this year. All preparers are with large, national
firms, who have also handled my investments.

I've had a short term rental property from 2015 - 2022, that is rented thru
VRBO and AirBandB. I (they) file Schedule E.

Between 2015 and 2021, all preparers have calculated the Fair Rental Days
(Schedule E) as the number of days the property was rented out to short
term tenants. If the property is rented out 150 days, and I am in the
property 35 days, Fair Rental Days are 150, Personal Use Days are 35, and
the allocation to Business Use is 150/(150+35). That is how my preparers
from 2015 - 2021 have calculated business use.

My new preparer for 2022, for Fair Rental Days, uses the days in the year
minus the days used for personal use. This year, the property was used for
28 days for personal use, so the preparer used 365 minus 28 = 337 days for
business use.

I do realize that the 2022 method does decrease my expenses for the rental,
thus increasing the rental income, but I just want to get it right. I've
aksed this new preparer, but wanted to ask here, too.


TIA

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[Taxed and Spent]

On 3/29/2023 12:43 PM, Boris wrote:
> I changed tax preparers this year. All preparers are with large, national
> firms, who have also handled my investments.
>
> I've had a short term rental property from 2015 - 2022, that is rented thru
> VRBO and AirBandB. I (they) file Schedule E.
>
> Between 2015 and 2021, all preparers have calculated the Fair Rental Days
> (Schedule E) as the number of days the property was rented out to short
> term tenants. If the property is rented out 150 days, and I am in the
> property 35 days, Fair Rental Days are 150, Personal Use Days are 35, and
> the allocation to Business Use is 150/(150+35). That is how my preparers
> from 2015 - 2021 have calculated business use.
>
> My new preparer for 2022, for Fair Rental Days, uses the days in the year
> minus the days used for personal use. This year, the property was used for
> 28 days for personal use, so the preparer used 365 minus 28 = 337 days for
> business use.
>
> I do realize that the 2022 method does decrease my expenses for the rental,
> thus increasing the rental income, but I just want to get it right. I've
> aksed this new preparer, but wanted to ask here, too.
>
>
> TIA
>

I am interested in what others reply, but were NONE of your days at the
property management days? Such as inspecting the property, meeting with
vendors, doing your own bit of repairs and cleaning, buying new items
for use by renters, etc. etc.?

[Stuart O. Bronstein]

Boris <nos...@invalid.com> wrote:

> I changed tax preparers this year. All preparers are with large,
> national firms, who have also handled my investments.
>
> I've had a short term rental property from 2015 - 2022, that is
> rented thru VRBO and AirBandB. I (they) file Schedule E.
>
> Between 2015 and 2021, all preparers have calculated the Fair
> Rental Days (Schedule E) as the number of days the property was
> rented out to short term tenants. If the property is rented out
> 150 days, and I am in the property 35 days, Fair Rental Days are
> 150, Personal Use Days are 35, and the allocation to Business Use
> is 150/(150+35). That is how my preparers from 2015 - 2021 have
> calculated business use.
>
> My new preparer for 2022, for Fair Rental Days, uses the days in
> the year minus the days used for personal use. This year, the
> property was used for 28 days for personal use, so the preparer
> used 365 minus 28 = 337 days for business use.
>
> I do realize that the 2022 method does decrease my expenses for
> the rental, thus increasing the rental income, but I just want to
> get it right. I've aksed this new preparer, but wanted to ask
> here, too.

I have not run across this specific issue before. But my guess is
that it depends on your intention. The property should be considered
open for business in any day that you have it open for, and market
for use by, renters. So if it is available to rent, and you try to
rent it out for every day you don't actually use it, then your second
preparer is correct.


--
Stu
http://DownToEarthLawyer.com


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[Boris]

Taxed and Spent <nospam...@nonospam.com> wrote in
news:u0418o$sfks$1...@dont-email.me:

> On 3/29/2023 12:43 PM, Boris wrote:
>> I changed tax preparers this year. All preparers are with large,
>> national firms, who have also handled my investments.
>>
>> I've had a short term rental property from 2015 - 2022, that is
>> rented thru VRBO and AirBandB. I (they) file Schedule E.
>>
>> Between 2015 and 2021, all preparers have calculated the Fair Rental
>> Days (Schedule E) as the number of days the property was rented out
>> to short term tenants. If the property is rented out 150 days, and I
>> am in the property 35 days, Fair Rental Days are 150, Personal Use
>> Days are 35, and the allocation to Business Use is 150/(150+35).
>> That is how my preparers from 2015 - 2021 have calculated business
>> use.
>>
>> My new preparer for 2022, for Fair Rental Days, uses the days in the
>> year minus the days used for personal use. This year, the property
>> was used for 28 days for personal use, so the preparer used 365 minus
>> 28 = 337 days for business use.
>>
>> I do realize that the 2022 method does decrease my expenses for the
>> rental, thus increasing the rental income, but I just want to get it
>> right. I've aksed this new preparer, but wanted to ask here, too.
>>
>>
>> TIA
>>
>
>
> I am interested in what others reply, but were NONE of your days at
> the property management days? Such as inspecting the property, meeting
> with vendors, doing your own bit of repairs and cleaning, buying new
> items for use by renters, etc. etc.?
>

A google search finds this:

"Fair rental days” are the number of days your home was actually rented
by a party, not the total number of days it was available to rent. As a
supplement to Form 1040, Form Schedule E asks about fair rental days to
determine if your property is considered a business or a residence in
the eyes of the IRS."

A search at irs.gov finds this:

https://www.irs.gov/taxtopics/tc415

"Dividing Expenses between Rental and Personal Use"

"If you use the dwelling unit for both rental and personal purposes, you
generally must divide your total expenses between the rental use and the
personal use based on the number of days used for each purpose."

2015-2018, this preparer used days rented
2019-2021, new preparer used days rented
2022, current preparer is using days available for rent

>From the above, it appears that the current preparer is incorrect. He
hasn't replied yet, so let's see what he has to say.

It doesn't look to me that this issue is open to opinion by the IRS.
Looks like it's calculated so the IRS gets the most in taxes.

[Stuart O. Bronstein]

Boris <nos...@invalid.com> wrote:

> A google search finds this:
>
> "Fair rental days" are the number of days your home was actually
> rented by a party, not the total number of days it was available
> to rent. As a supplement to Form 1040, Form Schedule E asks about
> fair rental days to determine if your property is considered a
> business or a residence in the eyes of the IRS."

This quote is from a website that just gives someone's opinion,
without any supporting documentation. I think it's wrong. Yes, it
may be considered a hobby rather than a business if you use it for
more than 10% of the days it's actually rented out. But that doesn't
mean that the days you are holding it open for rent are days for
personal use.

> A search at irs.gov finds this:
>
> https://www.irs.gov/taxtopics/tc415
>
> "Dividing Expenses between Rental and Personal Use"
>
> "If you use the dwelling unit for both rental and personal
> purposes, you generally must divide your total expenses between
> the rental use and the personal use based on the number of days
> used for each purpose."

As far as I'm concerned, if you had the property up for rent for all
the days you weren't using it, (and you don't use it very many days
comparatively) when no one is staying there but you are marketing it
and wanting to find people to stay there during those days, you are
using it for rental purposes, even if not actually renting it out.

> 2015-2018, this preparer used days rented
> 2019-2021, new preparer used days rented
> 2022, current preparer is using days available for rent
>
>>From the above, it appears that the current preparer is incorrect.
>> He hasn't replied yet, so let's see what he has to say.
>
> It doesn't look to me that this issue is open to opinion by the
> IRS. Looks like it's calculated so the IRS gets the most in taxes.

You can do it the safe way if you like. When you do that you also
lose depreciation. But if the IRS decides that days that the place
was for rent but not rented were actually for rental purposes, they
will require you to recapture depreciation for those days anyway,
even if you actually never took that depreciation.

--
Stu
http://DownToEarthLawyer.com


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[Boris]

"Stuart O. Bronstein" <spam...@lexregia.com> wrote in
news:XnsAFD7AE1B2121D...@130.133.4.11:

> Boris <nos...@invalid.com> wrote:
>
>> A google search finds this:
>>
>> "Fair rental days" are the number of days your home was actually
>> rented by a party, not the total number of days it was available
>> to rent. As a supplement to Form 1040, Form Schedule E asks about
>> fair rental days to determine if your property is considered a
>> business or a residence in the eyes of the IRS."
>
> This quote is from a website that just gives someone's opinion,
> without any supporting documentation.

This comment is off topic, but I always wondered why there was never any
attribution to google searches that provide those types of results. I
really don't care for those types of results. Thanks.

Past preparers have always done it the 'safe' way, and I've always taken
depreciation.

Here is my preparer's reply:

"The prior years were prepared correctly. They used the standard method
of calculating business vs personal use allocations. Because you used the
property so few days for personal use I decided to treat it like we would
if there were no personal use days. In that event, all days the property
was available to rent even if not rented are considered as if rented. It
is a slightly more aggressive approach but I've never heard of it being
questioned by the IRS. If you would be more comfortable with the standard
approach I can certainly modify the Schedule E."

Ok. I get it.

During all years, the property was available for use except for the days
it was used for my private use...for repairs, cleaning, etc. All other
365/366 days of the year, it was posted and available for rent.

Also, in all years, including this year, depreciation was taken.

Using the 'safe' method, (private use divided by (actual occupied rental
+ private use)), prior years private use has always between 28% and 15%.

For 2022, the 'safe' method gives a private use of 14%, and the
'aggressive' method gives a private use of 7%, so I see this preparer's
thinking.

I think I'll just approve his method, as either way costs me nothing, and
depreciation is taken.