Airbnb/House Hack combined - Tax Timing Question

[Davis Hooten]

I recently bought my first home with a conventional loan near the end of 2022. I've been setting it up to rent out part of the house through Airbnb while living in the other half. I've done some research into the tax implications and have seen that it can get tricky/complex very fast, but that basically you can prorate the portion of your house that you are renting and treat that as a rental property while treating the other portion as a personal home.

My concern is that I haven't began renting/advertising to rent out the other portion of my house yet, so my "rental income" is zero for 2022. However, I have made plenty of legitimate expenses to set up the Airbnb and most of those expenses were in 2022.

 My question is: although I made no income from my "short term rental/house hack", am I still able to benefit from the same expense write offs as anyone else who is doing a house-hack/rental when filing for 2022 taxes? 

I've heard that you have to be "in business of renting" to get these benefits, which I guess technically I am not yet. But since most of these expenses I made were in 2022, does that mean I just miss out on being able to write off those expenses? 

If so, then it seems like I chose pretty poor timing to make all my expenses, ha!

Thanks in advance for any feedback!

[Linda Weygant]

Quote from @Davis Hooten:

I recently bought my first home with a conventional loan near the end of 2022. I've been setting it up to rent out part of the house through Airbnb while living in the other half. I've done some research into the tax implications and have seen that it can get tricky/complex very fast, but that basically you can prorate the portion of your house that you are renting and treat that as a rental property while treating the other portion as a personal home.

My concern is that I haven't began renting/advertising to rent out the other portion of my house yet, so my "rental income" is zero for 2022. However, I have made plenty of legitimate expenses to set up the Airbnb and most of those expenses were in 2022.

 My question is: although I made no income from my "short term rental/house hack", am I still able to benefit from the same expense write offs as anyone else who is doing a house-hack/rental when filing for 2022 taxes? 

I've heard that you have to be "in business of renting" to get these benefits, which I guess technically I am not yet. But since most of these expenses I made were in 2022, does that mean I just miss out on being able to write off those expenses? 

If so, then it seems like I chose pretty poor timing to make all my expenses, ha!

Thanks in advance for any feedback!

 Hi Davis,

You've got some great questions here and I recommend getting with a real estate savvy tax professional/CPA to dive into your particular details.  However, broadly speaking:

You said: my "rental income" is zero for 2022. However, I have made plenty of legitimate expenses to set up the Airbnb and most of those expenses were in 2022.

Those expenses are not deductible until your house is In Service.  The In Service date is the date that it is available and ready to rent.  Usually, that's the date when you first turn on your rental calendar in one of the online platforms such as AirBNB.

However, it does not mean those expenses are lost.  First, you'll need to determine what can be deducted as of the in-service date and what must be depreciated.  That can be a complex and nuanced determination, so make sure you know those rules really well or you engage with a tax professional/CPA who does.

So these expenses will be considered for 2023 tax year when you can then deduct/depreciate them against that rental income.

You said:  I've heard that you have to be "in business of renting" to get these benefits,

That's not a thing.  Wherever you heard that, stop listening.  If you are renting your space with a profit motive, then that is enough to be able to deduct all ordinary and necessary expenses that will help you generate that profit.  Profit motive is true, even if your depreciation is bringing your profits back down to zero.

Best of luck to you.