I know these are fairly common topics and I've done a lot a research on them but there are some points to my specific situation that I'd appreciate insight into.
Background:
In Early 2021 my wife and I bought a property for STR and began renovating it almost entirely ourselves. This took a lot of time and we did not place the property in service until mid-2022. I have contemporaneous logs of our time and believe we've met the 500 hour test in 2022. As my avg rental period is <8 days, and I have <14 days personal use at the property and believe I can meet the material participation test, this should be a non-passive activity.
Specific Questions on Material Participation:
1) Do hours logged for material participation in 2022 include time prior to placing the property in service (i.e. first half of 2022)? My thought is yes because that was time spent renovating the property to prepare it to be rented.
2) Do hours logged include time spent driving to the property to perform renovations and re-stock supplies? I've seen conflicting answers on this. This would be substantial time for me as the property is a few hours away. I have a contemporaneous mileage log along w/ what was done each trip to go along with this.
3) I am aware that for the IRS it is a red flag that I maintained a full time job over this period (a good amount of renovation work was done while working remotely waiting on jobs to finish). My wife was part-time and also contributed significantly. As far as I know neither of these are a necessarily deal breakers but just means we need to have really good logs to back this up in case of an audit.
4) I have a management company handling the scheduling of guests, cleanings after guest leaves, and check-in/check-out duties. I am aware this is another red-flag for the IRS for us being able to material participate - however is this a hard rule? My expectation is that we will likely only meet the material participation test in 2022 assuming that our renovation work in Q1/Q2 counts. For future years, we probably wouldn't meet the 500 hours test (though we still do participate a significant amount as we periodically re-stock supplies at the place, handle most maintenance issues due to shortage of workers in the town, and monitor sensors during guest stays - leak sensors/heat/stove).
Specific Questions on Depreciation:
Assuming that I have the qualifications for non-passive activity, I then have some questions on bonus depreciation and related stuff.
5) It is my understanding that Qualified Improvement Property (QIP) bonus depreciation is probably not useful for me because I did most of the renovations prior to placing the property in-service (save for a few things). Is this accurate - any way around it? I ask since I did a lot of renovations in 2021 and Q1/Q2 2022.
6) What qualifies as equipment under bonus depreciation? Certainly appliances and fixtures and as far as I understand, other improvements.
7) Regarding a cost segregation study, given my property purchase of 2021 and in-service date of 2022, am I correct in thinking I could still have a study done and use 100% bonus depreciation for 2022?
Thanks!
