Tax Question - Do Blocked and Unrented Days matter when prorating annual expenses?

Regulations/Tax Issues
1

For an airbnb rental, can anyone definitively explain how BLOCKED Days factor into prorated annual expenses (e.g., Utilities, Interest, Etc)? Blocked days meaning when the rental is NOT available for rent, perhaps because it’s off-season, or the owner is taking a short break. Blocked days does NOT mean “personal use” days; the owner will not be using the Dwelling Unit (whether it’s a rented room in a house or a whole house rental) at all when blocked.

Based on the HR Block* and IRS Pub 527** cited at bottom, it seems to imply that blocked (off market) days and “unrented” days DO NOT factor at all into calculating a proration of ANNUAL expenses. To be clear as possible, here are two simple scenarios (let’s ignore income, passive/active rules, etc) - are my calculations of what can be expensed on Schedule E or C correct?

SCENARIO I - Whole House rented in 2017, 365 days broken out below.

 55 - Unrented Days (was available)
200 - Rental Use (days rented)
100 - Days Blocked (not listed/not available but NOT used personally) 
 10 - Personal Use Days

—Deductable Expenses, Prorated—

 95.23% - Days Rented % .... 200 / (200 + 10 Personal Days) 
100.00% - Area Rented % .... 2,000 sqft / 2,000 sqft
 95.23% - Rental Use %  .... 95.23% * 100% 

$5,000.00 - Total Utilities (x12 months) .... $5,000 * 95.23%
$4,761.50 - Prorated Expense on Schedule E/C

$10,000.00 - Mortgage Interest (x12 months)
 $9,523.00 - Prorated Expense on Schedule E/C .... $10,000 * 95.23%

SCENARIO II - 1 room rented in a 4bdrm house in 2017, 365 days broken out below

 55 - Unrented Days (was available): 
200 - Rental Use (days rented)
100 - Days Blocked (not listed/not available but NOT used personally) 
 10 - Personal Use Days

—Deductable Expenses, Prorated—

95.23% - Days Rented % .... 200 / (200 + 10 Personal Days) 
10.00% - Area Rented % .... 200 sqft / 2,000 sqft
 9.52% - Rental Use %  .... 95.23% * 10% 

$5,000.00 - Annual Utilities (x12 months)
  $476.00 - Prorated Expense on Schedule E/C ....  $5,000 * 9.52%

$10,000.00 - Mortgage Interest (x12 months) 
   $952.00 - Prorated Expense on Schedule E/C .... $10,000 * 9.52%

—REFERENCES—

*HR Block Article:
Days Rented % = (Rental Use) ÷ [(Rental Use) + (Personal Use)]
Area Rented % = (Sq. Footage Rented) ÷ (Overall Sq. Footage)
Rental Use % = (Days %) x (Area %)

**IRS Pub 527

“When dividing your expenses, follow these rules:
Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. (This rule does not apply when determining whether you used the unit as a home.)
Any day that the unit is available for rent but not actually rented is not a day of rental use.”

“In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price.”

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I don’t think any of us here are qualified Tax Consultants. If it were me, I’d consult a real tax professional if you’re worried about things…

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3

I second this. This is not really the place for complicated questions of this nature. Also anyone who is a CPA and answers cannot answer without a disclaimer… so maybe take it to a CPA forum? :laughing:

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4

The title is a simple question, the rest is just more detail so it’s clear for others who may read this someday looking for similar advice. I’ve read more complicated questions and answers about taxes on this exact forum, so it’s definitely a good place :). If you can’t help, I understand, no worries.

For anyone who is able to help, I’m interested in real airbnb guests feedback on how they’ve handled their tax filings for this exact question. I will be working with a CPA for the tax year, but even they can give mixed or wrong answers, so having real community guidance is helpful!

5

Disclaimer the following is for informational/discussion purposes and does not constitute professional tax advice:

I found this publication useful:

I think the one-bedroom-in-a-house host should proceed with caution, and hire a tax preparer to advise and if necessary go to bat for them.

  1. Are any non-rented days able to be designated as “blocked” when the rental space is a spare bedroom?
  2. Is spare bedroom rental assumed to be subject to the “home” limitations on rental expense deductibility:
    “You won’t be able to deduct your rental expense in excess of the gross rental income limitation (your gross rental income less the rental portion of mortgage interest, real estate taxes, and casualty losses, and rental expenses like realtors’ fees and advertising costs). However, you may be able to carry forward some of these rental expenses to the next year, subject to the gross rental income limitation for that year.”

This particular accountant addresses Airbnb-ing part of your house: https://www.biggerpockets.com/forums/51/topics/497677-deduction-and-depreciation-of-airbnb-rental.

Note that his opinion is that the use is subject to deductibility restrictions as a home…

I realize these matters will be of great interest with the new tax law limitations on property and mortgage tax deductibility for the homeowner.

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6

We live in the US and have a second home in another country (St Lucia) that we rent out when we are not there ourselves. I’ve researched the tax laws extensively and have filed several years of taxes that include our business reporting for renting out our home.

We have also blocked a few nights for maintenance (actually, we were there, but since we spent most of our time putting polyurethane on the floors, reupholstering furniture, making other repairs), those days did not count as personal use or a rented days. We classified them as unrented days. I would interpret the situation to be the same as yours, with one exception - we did not block very many days from being rented. So I believe your math is right.

The “thin ice” you are on, in my non-tax-expert opinion, is that you blocked so many days. 100 seems like a lot and it might to an auditor, too. It could look suspicious.

Of course, you have to be audited to have to explain to them the difference between unrented and blocked.

And I have not looked at the new tax laws at all yet, so this may only be valid for 2017 and earlier.

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7

Thanks, this actually helps reconfirm another thought I have on safe harbor. Appreciate the input!

8

This is really good feedback, much appreciated. Yeah, blocked days for maintenance seem clear as the IRS specifically accounts for them. Agree on the 100 blocked days, just used as strawman data. But in theory, 100 or even more could be real, probably just risks an audit. I think I’m leaning towards rarely blocking days since it’d be hard to prove the rooms weren’t used personally (even though for Sure they were not). Ultimately, one normally can’t expense anything greater than income anyway (if under passive rules), so maybe the IRS wouldn’t really care. I’ll update this with more feedback from a CPA when I meet with one.

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9

@Orden -
Instead of blocking days that you don’t want to rent, you could increase the price to high enough that you probably won’t get booked. I was surprised at your comment about being blocked for “off season” - that’s the right time to just keep your prices at high season prices and have those days off as unrented.

The IRS won’t argue with your pricing policies, only your personal use or days that appear to be personal use.

10

Thanks Piton, I’ve been thinking about that exact strategy for 2018. As long as it’s Fair Market Value, the IRS can’t argue with it, which seems much safer than trying to just block the days and then trying to explain in an audit they weren’t used as personal!!

11

I can’t see that the IRS would care if you priced it over Fair Market Value and did not get rented. They are interested in when you rent it out at below fair market value, then try to write the expenses off as business expenses.

13

And to add…some people do like to have at least one full day in between cleanings. That’s just another reason that someone may block off days.

Or maybe they just don’t want the wear and tear and don’t really need the income. So they may only rely on one trustworthy housekeeper who can only work certain days for turnover to happen…

14

Cabinhost, ya all valid points. I don’t think IRS would know unless they audited and requested records from airbnb (who would probably release them). Still, it’s an interesting question that may be more of a risk to the folks who rent a room(s) then entire homes. I’ll guess it’s unlikely to be an issue, but definitely was worth asking to get others thoughts (which I appreciate! :slight_smile:

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@cabinhost - that’s my point. I don’t know how the accounting software Orden is using reports days, and I don’t recall any “blocked” category in the tax forms. So I call blocked days “unrented” days and leave it at that. If you block out a turnover day for cleaning, that’s easily explainable and defensible, but blocking weeks at a time may look odd. Please note my input is for a whole house rental, not a single room rental. I have no idea or advice to give on taxes for a single room.

16

Pretty sure they are not going to use a blocked calendar as proof of anything.
What about those of us who use multiple platforms and block off the days for other guests? Or if friends and family are coming to stay? Or if we just get a bad guest and want a break from it all? I have done all three.

19

If you were under review (randomly selected or triggered by red flag) the IRS examiner might ask for your contemporaneous records of the purpose of blocked days. If you said “plumbing repairs” they might ask to see a receipt. I don’t see an immediate issue with “closed for the season,” “closed due to owner out of the area for medical treatment/on vacation in France,” for a whole house rental. Potential hard sell if for a shared dwelling unit. Some demarcation such as lockable door, number or name on the door “unit B1” “guest room” “Van Gogh room,” separate entrance, might help. Family, even at market rate unless they use the rental as their main home, and anyone less than market rate are all personal days, based on a read of US IRS pub 527.
For discussion purposes, does not constitute tax advice.

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