Thanks for this guidance. Do you happen to know which tax software handles ITIN applications most efficiently? And approximately how long should we expect for the ITIN processing?

All the major tax software programs (TurboTax, H&R Block, TaxSlayer) can handle ITIN applications equally well. They each have guided interviews that walk you through the W-7 form and explain what supporting documents you need. As for processing time, unfortunately, it's quite lengthy right now. Initial ITIN applications are taking about 7-11 weeks according to the IRS, but in practice, it can sometimes take 3-4 months, especially during peak tax season. The good news is that you can still file your return while the ITIN application is processing - you just won't receive certain credits until the ITIN is issued.

This is so true! I used TaxAct last year on an L1 visa and it asked the right questions to determine I was a resident alien for tax purposes based on the substantial presence test. Made a huge difference in available deductions.

We usually file ourselves using tax software. Do you think it's worth paying for a CPA just to get help with the IP PIN issue? I'm wondering if the cost would be worth it at this point.

It depends on your situation. If you have a relatively simple return that you're comfortable filing yourself, hiring a CPA just for the IP PIN might be overkill. The services others mentioned like taxr.ai or Claimyr would probably be more cost-effective in that case. However, if you have a more complex tax situation that might benefit from professional review anyway, this could be a good excuse to establish a relationship with a CPA. Many offer reasonable rates for basic returns, and the peace of mind plus PIN assistance might be worth it. Some also offer a free initial consultation where you could ask about their ability to help with the IP PIN specifically.

This is actually bad advice. Filing without your IP PIN when you've been issued one can cause serious problems. The whole point of the IP PIN program is to prevent identity theft, so the IRS will flag your return and it could trigger an audit or further identity verification steps.

Those business activity codes are super helpful! Do you know if there's a specific one for social media management? That's mainly what I do and I wasn't sure which category fits best.

That's really interesting, I hadn't come across Section 195 in my research. How would I "demonstrate" that I was still in startup phase? Would the fact that I only had one short-term guest who was a friend be evidence of that? And how does this interact with the depreciation requirements that seem to start once I had that first paying guest?

To demonstrate you were in startup phase, you would need to show that you were preparing to enter the rental business but not yet actively operating. Documentation is key here - keeping records of renovation work, marketing efforts in progress, business plan development, etc. The fact that you only had one friend stay for a fee that was likely below market rate could potentially support your position that this wasn't the start of regular operations. Regarding depreciation, there's an important distinction here. Section 195 applies to business startup costs (like market research, analysis, business formation costs, etc.), while depreciable assets like furniture and appliances follow different rules. Those depreciable assets would generally start being depreciated when placed in service, which would arguably be when your property was ready and available for rent - potentially when your friend stayed there. It's a complex area with some gray zones. The most conservative approach would be to start depreciation in 2024 for your assets while potentially treating certain qualifying expenses as Section 195 startup costs. This is definitely a situation where professional guidance specific to your circumstances would be valuable.

I went through an audit 3 years ago specifically about first-year rental losses. In my experience, the IRS was mainly looking at whether I had the "intent to profit" from the rental activity. They wanted documentation showing I was genuinely trying to rent it out at market rates and not just using it primarily as a personal residence with occasional rentals. They also scrutinized my depreciation start dates and whether I had properly segregated personal use vs. rental use time. As long as you have good documentation and weren't trying to claim personal expenses as rental expenses, you should be fine even with legitimate losses in the first year. Those startup costs and initial losses are normal in the rental business.

That's really helpful, thanks. I do have good documentation of all my expenses and definitely was trying to rent it out (have all my marketplace listings saved). I'm just nervous because the loss ratio is so high compared to income in that first year. Sounds like that might be normal and expected though if I can document everything properly.

Thanks for the insider perspective! Do you think I should say something to my friend? He seems so confident about all this, and when I expressed concerns he just laughed it off saying "everyone does it." I don't want to be preachy but also don't want him to get in serious trouble.

I would definitely say something, but approach it carefully. Instead of making it about him being wrong, maybe share an article about audit risk factors or a story about someone facing severe penalties. You could mention that you spoke with a tax professional who raised red flags about some of these deductions. If he's resistant, you could suggest he get a second opinion from another CPA - one who doesn't have a vested interest in keeping him as a client by promising aggressive deductions. Sometimes people need to hear the same message from multiple sources. Just remember that ultimately, it's his decision and his risk to take. You've done your part by raising the concern.

Did you have receipts for everything? I've heard if you keep perfect records they can't really say much even if the deductions are aggressive?