How to enter rental property that is part year airbnb and part year long term rental

[david3]

New client has a rental property that was an Airbnb. The city ordinance no longer allows property to be rented as an Airbnb. 

The property became a long term rental in October.

Is there a way to split the other passive exception and the passive activity on Schedule E. I can't find any instructions in PS as to how to do this.

Thank you. 

[TaxGuyBill · Accepted solution]

Off the top of my head, my first inclination is to enter it as two properties (one for the first part of the year and the second for the second part of the year).

[david3]

Thanks.

Now I'm trying to determine how to continue the depreciation for the long-term rental property in PS, so that the depreciation life continues and doesn't start over for 27.5 years.

The property was put in use on 7/1/19 as an Airbnb and converted to a long-term rental on 8/7/24. I entered 8/6/24 as the disposal date on the Airbnb Sch E Worksheet to stop depreciation. I then entered 7/1/19 as the date acquired and 8/7/24 as the date placed in service for the asset on the long-term rental Sch E Worksheet. I also entered the amount of the accumulated depreciation for the Airbnb asset on the prior depreciation line for the long-term rental asset.

I get an error message stating that the prior depreciation should be blank.

I can't find any instructions in PS for how to handle this. How do I enter this in PS so that depreciation continues on the rental property?

[TaxGuyBill]

First question ... were you depreciating it over 39 years or 27.5 years?  Short-term rentals are supposed to be depreciated over 39 years (it is used on a "transient" basis).

[david3]

This is a new client. The previous tax preparer was depreciating over 27.5 years even though the property was identified as a short-term rental.

[TaxGuyBill]

It depends on if you want to do it the way that is technically correct, or the possibly 'close enough' way.

Technically correct: 

File Form 3115 to change the prior years to 39 years (although I would need to research if that is allowed because it is changing this year).  Then for the change this year, you have the option to (a) continue with 39 years or (b) restart everything using 27.5 years and the ADJUSTED Basis (reduced for the prior depreciation, although you don't actually enter the prior depreciation into the software).  If you restart things for 27.5 years, that applies to the entire year.

The possibly 'close enough' way:

1) One option is it just put the entire year's depreciation on the second property.

2) The other option is to split it as you said, but for THIS year, don't enter any prior depreciation.  Then NEXT year, change it to the original/old placed in service date and enter the total prior depreciation.

[david3]

Ok, that makes sense.

Thanks for your help.