Tax Questions on Using My Home's Rooms As AirB&B

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Tax Questions on Using My Home's Rooms As AirB&B

Andrew Yu
Investor · Little Rock, AR · Member since 2016 · 121 posts · 37 votes

I'm about to make my spare bedroom's AirB&B live. My question is what's the best way to report my income on this and also reduce taxes? Put my home in a LLC? We don't want to miss out on the zero capital gain when I sell my home in the future. What's the best strategy here?

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
4y

A SMLLC has no impact on your taxes. 

As long as its space within your primary dwelling unit you still qualify for 121 exclusion (vs. if you were renting 1/2 of a duplex it would impact it)

Whether in your name (sole prop) or a SMLLC- there will be no difference ont ax savings or on your 121 exclusion. 

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    4y
    Originally posted by @Andrew Yu:

    I'm about to make my spare bedroom's AirB&B live. My question is what's the best way to report my income on this and also reduce taxes? Put my home in a LLC? We don't want to miss out on the zero capital gain when I sell my home in the future. What's the best strategy here?

    - Putting the property in LLC is not going to give you any extra deductions.

    - You will qualify for the exclusion even with the business use. Frequently, a portion of a residence is used for business purposes (such as a home office/rentals). When determining the Section 121 gain exclusion, no gain allocation between business and nonbusiness use is required as long as both the residential and nonresidential portions are within the same dwelling unit. In other words, the entire property can qualify for the gain exclusion. However, the gain exclusion rules do not apply to that portion of a residence previously used for business or rental purposes to the extent of depreciation allowable. Even if depreciation is not claimed, the adjusted tax basis of the property must still be reduced by the allowable depreciation. The rule for recognizing gain to the extent of depreciation claimed applies even if the property is no longer used for rental or business purposes at the time of sale. Additionally, after 2008, certain nonqualified uses of the residence may preclude the full exclusion of gain from the sale. This basically means if you rent your property for 3 years after moving out of the primary residence. 

     

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  • Andrew Yu
    OP
    Investor · Little Rock, AR · Member since 2016 · 121 posts · 37 votes
    4y

    Thank you for the response @Ashish Acharya. Would you say I should just operate it as a sole proprietorship for this then? 

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  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    4y

    A SMLLC has no impact on your taxes. 

    As long as its space within your primary dwelling unit you still qualify for 121 exclusion (vs. if you were renting 1/2 of a duplex it would impact it)

    Whether in your name (sole prop) or a SMLLC- there will be no difference ont ax savings or on your 121 exclusion. 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
    2Reply
  • Andrew Yu
    OP
    Investor · Little Rock, AR · Member since 2016 · 121 posts · 37 votes
    4y

    Great @Natalie Kolodij! That's the answer I was looking for. I want the cap gain exclusion but also get to deduct business expenses. Thanks for clarifying it for me! 

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    4y

    @Andrew Yu

    You have to be mindful of code section 280A when you operate a business out of your home. Some of your expenses may be limited.

    In regards to expenses, you may be able to pro-rate utilities, mortgage interest, depreciation expense, real estate taxes, etc to name a few deductions.

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