Bonus Depreciation with primary residence/room rentals

[Kaylea Blackburn]

I am doing some research to explore if you can do a Bonus Depreciation on a home you reside in and rent out (half the home) on Airbnb to traveling professionals. 

And would doing this be worth it / Looking to reinvest return into a new rental property. 

Thoughts? 

[Michael Plaks]

Quote from @Kaylea Blackburn:

@Basit Siddiqi I am aware of 280A limits. How would it impact me in this case? 

I don't think you are, actually. Section 280A prohibits you from taking a loss on a mixed-use property which yours is. Since you cannot take a loss anyway, bonus depreciation is useless. All it does is  it increases the loss that you cannot take. 

$25,000 exception is irrelevant here, because Section 280A stops the loss entirely.

The quote from Pub. 527 is also irrelevant. IRS Publications are full of errors and do not carry any legal weight. This is a typical example where an IRS publication misinterprets the law, albeit in your favor. Section 280A does indeed have an exception for a "portion of a unit which is used exclusively as a hotel, motel, inn, or similar establishment."  

However, the interpretation of this phrase given in Pub. 527 is (unfortunately) wrong. The real definition can be found in Regulations 1.469-1T and numerous court decisions on this issue. The key is providing "substantial personal services similar to hotels" - i.e. daily maid services, meals etc. Merely renting out a room is not a "hotel", contrary to what Pub. 527 implies.

Bottom line: bonus depreciation is useless for renting out rooms.