Bed & Breakfast Allocation %

[ed_accountant]

Hi,

I have a client with very profitable rentals and now has purchased a bed and breakfast where he now presides. He has invested large sums of money to remodel and make availabe for rent.

The Bed & Breakfast has two bedrooms downstairs (600 Sq Ft) that the taxpayer uses as personal and three rooms upstairs (900 sq ft) that are for rental only. The B & B also has common areas (1500 sq ft) of a kitchen, living room and dining room.

Any suggestions on how to allocate depreciation, utilities and other common expenses.

Thanks :rolleyes:

[joelgilb]

Hi,

I have a client with very profitable rentals and now has purchased a bed and breakfast where he now presides. He has invested large sums of money to remodel and make availabe for rent.

The Bed & Breakfast has two bedrooms downstairs (600 Sq Ft) that the taxpayer uses as personal and three rooms upstairs (900 sq ft) that are for rental only. The B & B also has common areas (1500 sq ft) of a kitchen, living room and dining room.

Any suggestions on how to allocate depreciation, utilities and other common expenses.

Thanks

I would have expected depreciation rules were similar to using ones house for day care, but for a B & B it looks like you can only depreciate areas that are used exclusively for business and not common areas . Here is a link to the 2007 Master Depreciation guide as I could not find one to the 2008 guide. Note that this answer could have changed and the 2008 guide might be worth looking for as this would be one that I think would be arguable in front of the tax court.

http://books.google.com/books?id=TWptAV2EN...hl=en#PPA130,M1

Joel

[taxtrio]

The IRS has a special guideline for B & B's. You can find it on the IRS site and download it. I wish I could remember what they are called, ?? Market Segment Guides? I had some for beauty shops, and horse farms.

Maybe "Market Segment Specialization Program"....?

[joanmcq]

The B & B rules are not like the daycare rules; actually they work pretty much like a home office or even more like renting a room. You can only take the rooms not used for personal, unless the personal area has living area, bedroom, bath and full kitchen, and the rental dining area, kitchen, etc are NEVER used for personal. The MSSP will give a lot of guidelines for what you cant do. My boss at work just did some very intensive research for a tax pro who was representing a client at audit on this issue. The client is going to get slammed; all of the remodel has to be capitalized and only the percentage that represents the rooms for rent can get deducted.

We determined that if you are going to have a B&B, live in a cabin in the back yard.