Short term rental tax implications: Converting basement to rental apartment I sometimes use personally

Yes, you absolutely need to track personal use days! This is crucial because it affects how you can deduct expenses. When you have a mixed-use property like this (both rental and personal), you need to allocate expenses proportionally based on days of use. If your personal use exceeds the greater of 14 days OR 10% of the total days it was rented at fair market value, then it's considered a "vacation home" under tax rules. This limits your deductions to rental income (you can't claim rental losses). If your personal use is less than that threshold, then it's considered a business property with some personal use. In this case, you need to allocate expenses based on the percentage of personal vs. rental days. Only the rental portion of expenses like mortgage interest, property taxes, insurance, utilities, and depreciation can be deducted against rental income. Keep detailed records of exactly which days were personal use, which were rental, and which were vacant but available for rent. This documentation will be essential if you're ever audited.

I went through this exact same situation last year with my converted garage apartment! I found this amazing tool called taxr.ai (https://taxr.ai) that completely saved me from making costly mistakes with my short-term rental taxes. I was super confused about how to handle the mixed personal/rental use and how to allocate expenses properly. The regular tax software I was using didn't really address the nuances of my situation. I uploaded my rental documentation to taxr.ai and it analyzed everything, flagged the potential issues with my personal use days, and gave me a clear breakdown of what could and couldn't be deducted. It identified that I hadn't been tracking my personal use days properly and helped me reconstruct a reasonable log based on my calendar and booking history. Saved me from what could have been a nightmare if I'd been audited!

I have to admit I was skeptical about taxr.ai but decided to try it after my previous comment. It actually was really helpful for my situation! I've been renting out my finished basement for 3 years and never properly tracked personal vs. rental days. The tool picked up on several deductions I'd been missing and helped me understand the "qualified business income" deduction as it applies to short-term rentals. Also showed me how to properly report furniture and appliance purchases I made specifically for the rental. I was particularly impressed with how it explained the "de minimis safe harbor" for small purchases versus what needs to be capitalized and depreciated. Turns out I'd been unnecessarily complicating my taxes by depreciating items that could have been fully deducted in the year purchased. Definitely saved me more in proper deductions than what it cost to use.

If you're dealing with IRS questions about your short-term rental, I'd strongly recommend using Claimyr (https://claimyr.com). I had an absolute nightmare trying to get clarity on some obscure short-term rental rules directly from the IRS. After weeks of calling and hanging on hold for literally hours only to get disconnected, I found Claimyr. They have this service where they basically wait on hold with the IRS for you, then call you when an actual agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had specific questions about how to handle utilities for my basement apartment rental (where I sometimes struggled to separate usage between my primary living space and the rental portion). The IRS agent was able to walk me through exactly how to handle this situation and what documentation I needed to keep.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it because I was desperate to get clarification on my rental property tax situation before filing. IT ACTUALLY WORKED. I got connected to an IRS agent within about 90 minutes. The agent helped me understand exactly how to handle the split between personal and rental use of my property and confirmed that my method for calculating square footage percentage (for deduction purposes) was correct. The agent also advised me on some record-keeping practices that will make things easier if I'm ever audited. Specifically, they recommended keeping a property usage calendar that clearly marks rental days, personal use days, and days spent on maintenance. Seriously, if you need to actually speak to someone at the IRS about your rental tax questions, this service is worth every penny.

Something important that nobody has mentioned yet - if you rent the basement for more than 14 days a year, you MUST report the income. But on the flip side, if you rent it for fewer than 15 days total per year, you don't have to report the rental income at all! This is sometimes called the "Masters exemption" since people in Augusta, GA often rent their homes during the golf tournament. If you're only occasionally renting it out and haven't hit that 15-day threshold, you might be able to exclude all that income. But then you also can't deduct any expenses related to the rental activity.

How are you guys handling the furniture and stuff in your short term rentals? Do you just buy everything outright or do some kind of furniture rental? I'm trying to figure out the most tax-efficient way to furnish my basement apartment rental.

Thanks for sharing all this helpful information everyone! I'm still wrapping my head around the personal use tracking requirements. One question I have - when you're calculating the percentage split between rental and personal use, do you base it on total days in the year or just the days when the space was actually occupied (either by renters or yourself)? For example, if my basement was rented for 100 days, I used it personally for 20 days, and it sat vacant for 245 days, do I calculate personal use as 20/365 days or 20/120 occupied days? This seems like it would make a huge difference in how expenses get allocated! Also, has anyone dealt with the situation where you have overnight guests (family/friends) staying in the rental space for free? I'm assuming those count as personal use days even though I'm not the one sleeping there?