Hired a good sized accounting firm to do trust returns for three child trusts. 2015 was the first year for the child trusts because the grantor of the administrative trust that created the child trusts passed away in early 2015.
After the death of the grantor of the admin trust, a home in the
mountains was converted to a rental property with ownership split
among the three child trusts. Because the average stay of the
Airbnb patrons was less than 7 days, we had to file as a Schedule
C business rather than a Schedule E item. The accounting firm
also stated that because we were filing as a Schedule C business
activity, the property had to be depreciated as a nonresidential
property with a 39 year useful life rather than as a residential
property with a 27.5 year useful life.
I was unable to find anything in any IRS Pub (964 and others)
that substantiated this statement. I know that logic has no
place in the tx code, but mine says that the asset class is
determined by the characteristics of the asset rather than by
which Schedule you are reporting on. Any comments? There were
no personal use days in 2015, and at most, 5 days so far in 2016.
A second item that I was uncertain about was how to prorate
things like insurance and property taxes. In my past experience
with first and last year allocating, I have prorated based on the
number of days the item was in service as a rental. However, the
accountant says that if the tax or insurance bill was paid after
converting the property into a rental, that we can deduct the
whole amount, not just a prorated amount. I can understand the
rationale for this approach, but I wondered what was considered
"best practice" if there was no official guidance.
- posted 3 years ago