Q:
I don’t know whether you respond to specific questions/individuals but in trying to do some research came across your site. I have gotten two different responses to a tax question so thought I would give you a try.
I did a 1031 exchange this year–sold a condo I had rented for years and bought a home in a resort area in Delaware that will be rented on a weekly basis. In order to rent this home it had to be fully furnished–can this furniture and everything purchased to set up the kitchen for use be deducted in one year as a Section 179 expense?? I am a real estate agent so I know all my losses this year are not limited and since I didn’t settle on this till June I did not have a lot of rental income on it.
Thanks for any insight you can give.
A:
It depends on how you are going to show the new rental property on your tax return.
If you are going to show it on Schedule E as a regular rental property, you can’t claim Section 179 for the furnishings.
However, if you show it on Schedule C as a short-term rental property (average stay of seven days or less), you will be able to use Section 179 for the furnishings.
This special rule, which I usually call the “motel exception,” and many tax pros overlook, makes the activity not considered to be a passive one and thus not subject to those deductible loss limitations. You do need to be actively involved in the operation of the property to be able to claim the losses.
Another big benefit of this approach is to generate self employment losses on the rental Sch. C to offset self employment income from other business activities, such as real estate sales.
Good luck. I hope this helps.
Kerry Kerstetter
Tax Guru - Ker$tetter Letter 