Write Offs-AirBnb vs Rental

[Christopher Dunson]

Hi everyone and thank you for taking your time to help. What are the differences if any to Airbnb Write offs and tax benefits compared to traditional rental or small multifamily rental properties? Depreciation, cost segregation, etc. I have a client who is being told by someone she trusts there are vast differences in the strategies between the two and she can write off and have more benefits with airbnb, so she feels she has to do Airbnb. I have found her a house with a 4 plex on the same lot, and it would be 1, more reliable long term as a traditional rental, and 2, the 4 plex is seperated and extremely private and she could airbnb the main home if she wanted and bring in more money. 

Are there any tax benefits that one has that it's not possible for the other to have?

[John Underwood]

With a Vrbo you can also write off the utilities. You have more expenses like furnishing that can be depreciated. I wouldn't say buying more stuff for a tax write off is in any way a benefit though.

[Bruce Woodruff]

There are considerably more write-offs with a STR. Virtually everything can be expensed, even including food. We leave birthday cake for the birthday people, champagne for the anniversary couple, etc..... There is hardly anything that you can't expense.....

Most other tax issues are similar between the two.

[Yonah Weiss]

Originally posted by @Christopher Dunson:

Hi everyone and thank you for taking your time to help. What are the differences if any to Airbnb Write offs and tax benefits compared to traditional rental or small multifamily rental properties? Depreciation, cost segregation, etc. I have a client who is being told by someone she trusts there are vast differences in the strategies between the two and she can write off and have more benefits with airbnb, so she feels she has to do Airbnb. I have found her a house with a 4 plex on the same lot, and it would be 1, more reliable long term as a traditional rental, and 2, the 4 plex is seperated and extremely private and she could airbnb the main home if she wanted and bring in more money. 

Are there any tax benefits that one has that it's not possible for the other to have?

Christopher, your client is correct. There are actually significant differences between a STR and a long term rental. First of all, if the average daily stay is less than 7 days, then it is treated as a commercial property, not residential by the IRS, which means it's on a 39 year depreciation schedule, not 27.5. Furthermore, the income produced by airbnbs can be considered business income and not rental income. If done properly, short-term rentals can offset directly against ordinary (W2, active) income without the real estate professional status.

Losses generated by increasing depreciation with a cost segregation study, can be used to offset active business income without qualifying as a real estate professional.

@Brandon Hall recently did a 3 part series on his podcast covering the many details surrounding STRs and the specific tax benefits.

You can find it here https://www.therealestatecpa.c...

[Basit Siddiqi]

@Christopher Dunson

There are considerable tax differences between having short-term rentals vs long-term rentals.

Short-term rentals can be deemed non-passive depending on the average rental days.
Short-term rentals normally need to be furnished which would be eligible for bonus depreciation(immediate write-offs)
etc