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Working on my US tax filing and my Schedule C loss for the year on STR biz in the suite attached to my primary residence is $9,000. There are a couple factors here.
It’s a modest side business. My gross is not impressive in any year, but was down almost 70% over prior year due to covid restrictions and covid caution.
The crawl space under the suite was wet causing terrible humidity and I had a hit for removal of sodden insulation and waterproofing. Then the dedicated A/C heat pump unit blew (only 7 years old arghhh!) and had to be replaced. So huge unexpected repairs & improvements --which I expensed in entirety under SHST (safe harbor for small taxpayers). rather than gradually capitalizing.
Also expensing per usual the proportional share of mortgage interest, property taxes, building depreciation, solar panel depreciation, utilities, lawn care, and any “whole house” supplies (e.g., the new boot scraper on the back walk), which deflates my gain every year.
I also expense a hefty annual long term care insurance bill. [Correction: Can’t deduct this with a loss, I forgot!]
Getting itchy to open my platform calendars again, post-vaccine. Thank goodness for the sprinkling of off-platform, trusthworthy returning guests!
I even had a pre-wedding breakfast hosted in the back yard by parents of the groom; no restaurants available of course. I have a 5 ft. Statue of Liberty back there, in memory of NYC roots and suitably masked. Photos were taken with it, nicely surrounded by Spanish bluebells.
Yep, I spent way more than usual tarting up my backyard with plantings and nicer furniture. Covid boredom!
Oh, and the back deck rot had progressed so much I could no longer piecemeal put in new boards, had to hire someone. Another non-routine expense. What a year, in so many ways!
I just looked at My QB for last year and the thing that surprised me was my direct bookings accounted for 26% of my gross last year! Air was about 70% and a few VRBO’s. I knew it was up, really the first good year for directs but I had not done the math on it.
I too had a loss last year, it was due to capital improvements mostly I am not sure how the accountant will sort it out.
Turbotax ominously rated my audit risk as “medium.” “You have Schedule C income.” “You have high expenses.” “You have a loss on your rental property.” Obvi they haven’t adjusted their algorithms for “pandemic year.”
Nor do they understand that if you have an owner occupied rental, you can always have a loss and it’s legal. Only owner occupied rentals up to 6 units, farming, and commercial fishing can run losses for more than 3 years.
I look at it on basis of reporting – active or passive.
If you’re on Schedule C, rule of thumb for business is 3 out 5 years profit (2 out of 7 if you’re doing something with horses – another fine example of the power of lobbying $ in the US tax code!). That’s a safe harbor or presumption; there can be mitigating factors. The burden on you is to explain if audited.
I have a loss carry forward on Schedule E long term rental for 5 years since purchased. The rent is offsetting the cost of the significant deferred maintenance and improvements I am doing. The value is in the appreciation of the property.
I inherited 25% of the house and 25% of my mother’s tax loss carry forward. I had to by out my 3 siblings, but fortunately my sister was the executor and let me buy the house at appraised value, because if it had gone on the very tight market at the time it would have been bid up past what I could afford.
I look at those mortgage payments as a forced savings plan, with no profit but increased equity. The house has more than doubled in value in the 15 years since I bought it. My problem is that I need a better cash flow in order to refinance. That was supposed to happen now, because last summer was going to be my best year ever, but the pandemic.
I’ve got a house worth $700k and $450k in equity, but accessing that equity to make improvements like adding bathrooms is difficult. Hoping that an SBA disaster loan can help, but not sure yet.