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grandmabee

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Anyone work with one of these.  I have a client who purchased a separate house and turned it into a Airbnb.

They provide breakfast and snacks etc.  I am putting them on Schedule C because they are providing service.

They will never use personal because it is next door to their personal residence.

What life for the house?  I think 39 yrs but can't get ATX to use it without red error showing up.  Not sure what I am inputting wrong.

TIA

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First thoughts - never?  They will never allow any family members or friends at reduced or no cost?  Just checking. There must be a place to select residential rental.  In ATX, looking at my remaining residential rental client, the asset information should be real property #4 27.5 year res rental.  I don't think you would select nonresidential real estate as it could be a residence. At least that is what I have done and would do but have no direct experience with AirBnB.  I would think they are not unlike a vacation rental in, say, FL.  There would/could be 0 personal use days.

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Should be a rule, all ABnB owners should live next door.  Would reduce the party house issues.  Locally, such rentals require a permit process and license (ToT gets properly reported and neighbors have a chance to object), so depending on your relationship with the client, maybe ask if they have complied with all government regulations.

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What's wrong with Schedule E with 27.5 years depreciation? They are renting living accommodations except that their clients select to use it only for temporary basis. If a client comes and decides to rent it for a year, the owner of the air bnb will not have any objection. The breakfast is incidental like the free continental breakfast that hotels offer. The fact that the hotel offers breakfast and snack doesn't make them a restaurant.

If schedule C is the consensus, what if I have an air bnb and I hire someone to prepare breakfast?

 

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The hotel (if it were a sole proprietor, so I'm stretching) would not file a Schedule E. It would file a Schedule C because it's providing services. The hotel would not be reporting rent; it would be reporting income from services. But, I don't have any hotel clients, so I could be wrong about that.

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3 hours ago, Pacun said:

What's wrong with Schedule E with 27.5 years depreciation? They are renting living accommodations except that their clients select to use it only for temporary basis. If a client comes and decides to rent it for a year, the owner of the air bnb will not have any objection. The breakfast is incidental like the free continental breakfast that hotels offer. The fact that the hotel offers breakfast and snack doesn't make them a restaurant.

If schedule C is the consensus, what if I have an air bnb and I hire someone to prepare breakfast?

It is schedule C since grandmabee said client provides substantial services.  Therefore it is subject to SE tax per reg 1.1402(a)-4(c).

27.5 years is for a residential property.  In this case, nobody "resides" there as Gail in Virginia pointed out.

If you hire somebody to prepare breakfast you are still providing the services, same as changing sheets and daily cleaning.

We stayed in an ABnB where there was no food service (there was a well stocked refrigerator and pantry) no daily cleaning or bed changes (which was fine with us). That would be a schedule E activity with 39 year depreciation.

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What entails the breakfast and snacks? Are they produced by the owner or are they acquired from an establishment and just provided?

I read a report on these years ago and the determination was that you have to consider whether you are performing ongoing services and how substantial they are compared to inconsequential "services". Schedule C was sort of deemed if you cleaned every day, provided tenants with concierge services or cooked them food. If you gave them baked goods you bought at a store when they checked into the place, cleaned only after they left and just left them a binder of ideas where to eat - schedule E. I think how you advertise would sort of dictate it also.

 

I've stayed in many BnBs and I've stayed in many apartment sharing locales. IMO it's pretty obvious which should go on which form.

 

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11 hours ago, DANRVAN said:

It is schedule C since grandmabee said client provides substantial services.  Therefore it is subject to SE tax per reg 1.1402(a)-4(c).

 

the main idea of an air bnb is to make money from renting your free space, not by selling breakfast.

What is substantial? Let run some numbers... Let's say you rent a room for $100 a night. $90 is for the room itself and $10 for the amenities.  Do you still think it is schedule C?

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14 minutes ago, Pacun said:

What is substantial

It's a gray area to be sure. You clean and change linens before and after every guest, but it's certainly not like daily maid service with hotel amenities.

This article says to report it on Sch E, unless you're providing maid services and changing linens during the stay.

https://www.journalofaccountancy.com/issues/2017/apr/reporting-income-from-airbnb.html

The breakfast thing is the wild card. I would advise to stop providing breakfast.

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I

55 minutes ago, Pacun said:

What is substantial? Let run some numbers..

It depends on fact and circumstances.  There are black and white cases; and those that fall in the middle.

The original question here was not about which form to report on but the depreciation life of the building.

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It's amusing in tax scenarios like this one where it's not black & white, how many practitioners try to create their own alternate facts and theories about what to do.

Especially since the IRS position in this area has been basically unchanged since the 1950s.

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the way to avoid having your rental activity being classified as a bed and breakfast is not to provide substantial services to your guests—don’t provide them breakfasts, clean their rooms each day, or do their laundry. Charge renters a cleaning fee at the end of their visit that is separate from their daily rental charge.

https://www.nolo.com/legal-encyclopedia/tax-issues-when-renting-your-home-airbnb-vrbo.html

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So that's why they charge a cleaning fee.

 

We rented last November in Prague via AirBnb and they left us with candy, pastries, bottled water and juice to drink. When we stepped into the store downstairs the juice was on clearance for about $.25. In Berlin they left us with a bottle of wine.

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On 4/22/2020 at 1:25 PM, Medlin Software said:

Should be a rule, all ABnB owners should live next door.  Would reduce the party house issues.  Locally, such rentals require a permit process and license (ToT gets properly reported and neighbors have a chance to object), so depending on your relationship with the client, maybe ask if they have complied with all government regulations.

Yes, they received they city license, permit to operate an Airbnb

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