Renting Out Your Apt

[MsTabbyKats]

Client rented out his apt for a few day (less than 15) and Airbnb reported it on a 1099-K for $1700.

My software is telling me it doesn't have to be reported on the E....based on the time.

However....since this income is being reported to IRS ....I'm sure it will generate a "you owe us $$$" letter in a year or so.

I was going to report it....and then take the $1700 as an expense with a comment such as "rented for less than 15 days".

Any critiques or comments.

[joanmcq]

That is correct, 14 days or less, it's not taxable.

[JohnH]

I'd be inclined to leave this one off the return and deal with the CP2000 when or IF one appears. No sense waving a red flag in front of the bull at the outset. If IRS has questions, they know how to get in touch.

[Richcpaman]

He rented it for more than that. Ask him what the gross rental for the room was, because the $1,700 could have been the gross rent, or the net. Or check the AirBnB website for his address...

And I bet he was upset when he got the 1099...

AirBnB is supposed to be under the radar! Its FREE money!

I would put it on the return, after asking some questions of course, and either Sch E with a slice of expenses that make sense. The 14 day rule can apply here, but....

Rich

[DANRVAN]

I'd be inclined to leave this one off the return and deal with the CP2000 when or IF one appears. No sense waving a red flag in front of the bull at the outset. If IRS has questions, they know how to get in touch.

I disagree. That is a common practice and I have never heard of any IRS inquiries because of it. Why waste time and money dealing with a CP 2000, and not to mention a possible coronary arrest when you client sees that IRS letter in the mail.

It's better to grab the bull by the horns and throw him out of the corral now.

[Mr. Pencil]

AirBnB is supposed to be under the radar! Its FREE money!

I would put it on the return, after asking some questions of course, and either Sch E with a slice of expenses that make sense.

The 1099 is appropriate. The issuer does not know whether the rental is taxable to the recipient or not. For those who prefer to file the way the IRS expects, according to instructions, this income would not be reported. However, that would certainly generate a distressing letter, so Line 21 with an explanatory offset is a common and effective procedure. Another approach that actually follows instructions is to attach Form 8275 or other disclosure. Schedule E makes no sense, because there are no allowable deductions.

[JohnH]

I stand corrected.

Just changed my mind on this, in spite of IRS instructions.

(I have been known to throw the bull around , but never completely out of the corral)

[MsTabbyKats]

The 1099 is appropriate. The issuer does not know whether the rental is taxable to the recipient or not. For those who prefer to file the way the IRS expects, according to instructions, this income would not be reported. However, that would certainly generate a distressing letter, so Line 21 with an explanatory offset is a common and effective procedure. Another approach that actually follows instructions is to attach Form 8275 or other disclosure. Schedule E makes no sense, because there are no allowable deductions.

So, are you suggesting entering it on Line 21.. and then adjusting it to cancel out the income?

[jasdlm]

Publication 527

Used as a home but rented less than 15 days. If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). You are not required to report the rental income and rental expenses from this activity. The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses.

Used as a home and rented 15 days or more. If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . The expenses for personal use are not deductible as rental expenses.

If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. You do not need to use Worksheet 5-1.

However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1.

[Mr. Pencil]

So, are you suggesting entering it on Line 21.. and then adjusting it to cancel out the income?

No, I am in the category of preparers who prefers to follow instructions. I would not report the income, because it is not reportable. I would probably disclose the nonconforming treatment of Form 1099 to protect the client from accuracy penalty, in case he forgot some other days he also rented.

[Philadelphian]

No, I am in the category of preparers who prefers to follow instructions. I would not report the income, because it is not reportable. I would probably disclose the nonconforming treatment of Form 1099 to protect the client from accuracy penalty, in case he forgot some other days he also rented.

Just curious how exactly one would disclose this, and what your theory is as to how it would protect the client if they were in reality over the 14 days, if anyone can comment.

[jklcpa]

Just curious how exactly one would disclose this, and what your theory is as to how it would protect the client if they were in reality over the 14 days, if anyone can comment.

If you read the entire topic, Mr Pencil had already given the answer to your question 17 months ago.   Nonconforming treatment would be disclosed on Form 8275.

Are you a tax professional?

[DANRVAN]

I don't believe 8275 is appropriate at all in this situation and contradicts  Mr. Pencil's statement that per the IRS instructions "this income would not be reported." 

 

It is my understanding that form 8275 is used for a position that might not conform to IRS rules for which you have reasonable basis for substantiation.  Reasonable basis means the position has at least a one out of three chance of being sustained on its merits.

 

In regard to the 14 day rule, that is black and white.  How is form 8275 going to save from penalties if the tax payer did not accurately keep track of the number of days the house was rented out?

[Gail in Virginia]

I think the non-conforming part of this is not reporting income that was reported on a 1099, and the reasonable basis is that because it was a rental of less than 14 days it is not reportable income. Unfortunately, Mr. Pencil has not been seen on the forum for quite some time and cannot explain his answer personally since the question did not arise until much later.

[MsTabbyKats]

Just curious how exactly one would disclose this, and what your theory is as to how it would protect the client if they were in reality over the 14 days, if anyone can comment.

In reality...if the IRS were to question it....Airbnb has records of how many days the room was rented.

I report it...and deduct it on the Schedule E.

 

[DANRVAN]

The purpose of form 8275 is to prevent penalties if a position you take on a tax return is ultimately disallowed. Relief from the penalties is obtained if you can prove your position had reasonable basis.  Form 8275 has nothing do with following what was reported on a 1099 (which was correct since rent of $600 or more was paid out).

In this case the taxpayer is following the rules by not reporting the rent since the apartment was rented out less than 15 days. The taxpayer is not taking a questionable position so 8275 does not apply.  There is no position to disclose.

If it turns out the apartment was rented for more than 14 days, form 8275 will not provide relief from penalties since the taxpayer either reported the information incorrectly or did not keep good records. In this case the  preparer should verify the number of days the dwelling was rented.

Per the instructions for form 8275:

"If you failed to keep proper books and records or failed to substantiate items properly, you cannot avoid the penalty by disclosure".