I have another H&W client with an short term rental -  out of state Airbnb with less than 7 days average rental period.

They purchased the property mid-October 2023 and began renting in December. I can't find anything in my research that discusses how the more than 100 hours test is applied when a short term rental is purchased late in the year.

Is the more than 100 hours still applied for 2023, or are the 100 hours prorated?

If it is a hard 100 hours no matter when the property was purchased, then maybe they will be able to meet the substantially all hours participation test.

If they meet the material participation test, which causes the property to be taxed as a business, will they be able to expense $5,000 of start up cost for expenses to get the property ready to rent? These are expenses such as cleaning, supplies, travel, repairs and maintenance that are not major remodel or improvements but they total $6K.

I am reading conflicting information regarding the treatment of startup costs. Some are saying sec. 195 doesn't apply to short term rentals, others say it does.

If these costs can't be expensed as startup costs, then I guess they are included in the cost basis of the property and depreciated over 39 years - correct?

Thanks for your help.