By When you rent a bedroom in your home and that rental unit creates a tax loss, can you deduct the loss?
Yes, if you meet the four technical requirements listed below:
- You used the bedroom as a hotel unit because it was regularly available on a vacation rental site like Airbnb for occupancy by paying customers and you never used it for any personal purpose during the year (or after conversion to rental use).
- Your average rental period is for seven days or less, making it a hotel room because you rented the bedroom to what the tax code calls “transients.” (For example, if you rented the unit 25 times for a total of 77 days during the year, that’s an average rental of 3.08 days. You rented to transients.)
- Your rental unit is not a tax code-defined rental property because the average period of customer use of the unit is for seven days or less.
- You did all the work on the bedroom rental, and no other person helped you. Therefore, you materially participated in the hotel unit rental activity.
You rented your bedroom as if it were a hotel and materially participated in the rental. Assuming you were in this activity to make a profit, you qualify to deduct all of your expenses of rental against the rental income. If that creates a loss, you deduct the loss against all your other income.
If you want to discuss the tax implications of bedroom rentals with me, please call me on my direct line at 408-778-9651.