Short-Term Rentals

[Edsel]

The Nashville population and housing market is exploding.  There has never been a better market for "Short-Term Rentals."

People move to Nashville and look for something to rent for 2-3 weeks while they look for a permanent home.  Companies rent short-term so they have somewhere for their executives to live for a few days' visit, often on a repeating basis.  Rental price is sky-high.

My question is what happens to the deductibility of expenses if a rental property is available all year, but only rents 100 days a year (for example)?  Assume also that the owner does not ever stay in the facility - or at least not more than 14 days.

Remember the large number of vacant days is by design, not the same situation as a property being vacant for month or two just because a former tenant moved out. 

 

[Max W]

As long as it is available for rental during the unoccupied periods, I would treat it as any other rental.

[Pacun]

What is the intent of the purchasers when they bought those houses?

To when the "housing market is exploding" means that there is a lot of demand for housing AND it is for both rentals and purchases, so I doubt people will purchase homes to have them rented only 100 days when the housing market is hot.

[Edsel]

1 hour ago, Pacun said:

so I doubt people will purchase homes to have them rented only 100 days when the housing market is hot.

Probably not, but both situations I am encountering involve homes already owned.  The question remains.

Like Max, I'm not aware of anything that would be treated different...but wondering if the low occupancy would result in such a loss that the IRS might require a percentage to be applied to the expenses.

[Abby Normal]

No, the percentage is just for vacation rentals with more than 14 days personal use.

[Edsel]

Thanks to all who replied. 

Edsel

[Pacun]

I still believe "intent" has some role to play. What was the intent when they vacated the house? Was the intent to leave as investment property and then "why not rent it for a few days?", or the intent was to rent it but they cannot get a tenant with a year contract.  What will happen if they get a tenant that says, "I want the rent the house for a whole year"? If they refuse that tenant, then the property is not available for rent and you might have to prorate.

I agree with the others... if the property is available for rent all the time but it happens that you only get temporary contracts, then depreciate it and deduct all expenses.

 

[Edsel]

Not sure I know the intent.  I believe one of the houses was bought before the crash in 2008-9 and the buyer moved out and couldn't sell it so he began renting it conventionally.  Another was small and the guy got married so he needed more space.  At any rate, they could easily sell now but the idea of "short-term" renting is in vogue.

I'm virtually certain there is an agent involved who specializes in finding ST rentals for those who need it but cannot arrange for themselves and unwilling to enter a long-term lease.

[Terry D EA]

If that property is available for rent 365 days, I agree with Max totally treat it as any other rental property. It does not matter how long the tenant stayed or what the tenant's intent was. I think Edsel stated the tenant's intent very well. It would appear the owner's intent from Edsel's later reply was to turn the property into rental investment property. All depreciation and expenses can be taken regardless of whether the property was actually rented or not. It just has to be available for rent.