How to classify my beach vacation rental - second home vs. business property for tax purposes?

What happens if your expenses exceed your rental income with a second home classification? Can you carry those losses forward or are they just gone?

For a second home where personal use exceeds either 14 days or 10% of rental days, rental losses can't be used to offset other income. Any losses would need to be carried forward and can only be used against future rental income from that same property. If the property qualified as a business (personal use of 14 days or less and less than 10% of rental days), then you might be able to deduct losses against other income, subject to passive activity loss rules based on your income level and participation in the rental activity.

Did the service actually recommend a specific property usage schedule to maximize deductions? Like telling you exactly how many days to stay there vs rent it out?

Sounds interesting but how much did it cost? I'm wondering if it's worth it for just one vacation property or more for people with multiple rentals.

Yes, they actually gave me a detailed schedule showing how different usage patterns would affect my tax situation! They provided a chart showing the tax implications if I stayed there 10 days vs 20 days vs 30 days compared to different rental periods. It made planning my personal use so much more strategic. The service was definitely worth it even for just one property. I can't discuss exact pricing here but for the thousands I'm saving annually in deductions I would have missed, it paid for itself many times over in the first year alone.

Wait, how does this actually work? They can somehow get you past the IRS phone system? I've been trying to reach someone for weeks about my rental property tax questions.

Yeah right. Nobody gets through to the IRS these days. I've tried calling dozens of times about my vacation rental depreciation questions and just get disconnected. This sounds like a scam to me.

It uses a callback system that navigates the IRS phone tree for you. Instead of you sitting on hold for hours, their system handles that part and then connects you with an agent when one becomes available. It's actually pretty straightforward - you request a callback for a specific IRS department, and when an agent is ready to talk, you get connected. I was skeptical too, but after wasting literal days trying to get through myself, I was willing to try anything. I got connected with an actual IRS tax specialist who answered all my questions about vacation rental classification. It's no miracle - just a smart system that does the waiting for you.

Can you deduct things like the initial setup costs with a property manager? I'm looking at a service that charges a one-time fee to photograph, create listings, etc.

Yes, you can absolutely deduct those initial setup costs with a property manager. Those are considered startup expenses for your rental activity and are deductible - things like professional photography, listing creation, and initial marketing to get your property rented. Just make sure you keep detailed receipts for everything. I recommend creating a separate spreadsheet or using accounting software specifically for your rental property right from the start. Makes tax time so much easier when everything is organized from day one.

I tried TurboTax last year for my vacation rental and honestly it was ok for basic stuff but missed some deductions. I ended up hiring a CPA who specializes in real estate and she found about $3800 more in deductions! Worth the extra few hundred for her fee.

Thanks for sharing your experience! The calendar tracking tip is really smart - I hadn't thought about how important documentation would be for an audit. Quick question: when you say you track things like cleaning supplies and toilet paper, do you have to separate out what's used during your personal stays vs what's for guests? Or can you deduct 100% of those consumables since they're primarily for the rental business? Also curious about your LLC setup - did you have to get a separate EIN and bank account for the property, or can you still report it on your personal taxes?

@Freya Andersen This is really helpful! I m'curious about the furnishings deduction you mentioned - when you say you can deduct furnishings, are you talking about depreciating them over several years, or can you expense them immediately? I m'trying to figure out if buying all new furniture for the rental would be a huge upfront tax benefit or if it gets spread out. Also, did your accountant give you any guidance on how to handle improvements vs repairs for tax purposes? I m'looking at properties that might need some work before they re'rental-ready.

This is really valuable information about repairs vs improvements! I hadn't considered how much that distinction could impact first-year deductions. Quick follow-up question - where exactly is the line drawn between a repair and an improvement? For example, if I replace old appliances with newer models, is that considered a repair or improvement? And what about things like upgrading flooring or installing new light fixtures? Also, your point about startup costs is interesting. Do you know if there's a limit on how much in startup costs you can deduct in the first year, or can you deduct everything as long as you have proper documentation? The short-term vs long-term rental consideration is something I definitely need to think through more carefully. Do you know if switching between the two (like doing short-term in summer and long-term in winter) creates any additional tax complications?

@Ingrid Larsson Great points about repairs vs improvements! The IRS generally considers it a repair if you re'restoring the property to its original condition, but an improvement if you re'adding value or extending the property s'useful life. So replacing broken appliances with similar models would typically be a repair, but upgrading to significantly better appliances would be an improvement. For startup costs, you can generally deduct up to $5,000 in the first year if your total startup costs are $50,000 or less. If they exceed that, you have to amortize them over 15 years. But honestly, it s'worth having a tax pro review your specific situation since these rules can get complex. Regarding switching between short-term and long-term rentals - this can definitely create complications! The IRS looks at your overall rental activity pattern, and frequent switching might make it harder to establish a clear business purpose or consistent treatment. Plus, different rules might apply for things like passive activity losses depending on how actively you re'managing the property. I d'definitely recommend getting professional advice if you re'considering a mixed approach.