Bed and Breakfast

[Unregistered]

I just purchased a Bed and Breakfast and was wondering the best way to set up the personal vs. business usage. We use about 15% of the building for our personal living space and the rest is either shared or the guest rooms. Do I take 85% of the cost (less land) and depreciate it over 27.5 years? Are you allowed to use section 179 on the equipment and furniture?

Thank you for the help!

[Unregistered]

One more question: Schedule C or Schedule E?

[BOB W]

Schedule

I have used schedule C, which I believe is the correct way.

[dmj4]

provide a significant service

Yes, off the top of my head, the rule is that if your provide a significant service to guests you file a Sch C.

[jainen]

Schedule C

I agree about Schedule C, and so does that make it non-residential property (31.5 years)? You still can't use Section 179 for property used to provide lodging.

[S T]

Audit Tech Guide

Here's a link http://bookstore.gpo.gov/irs/audit_guide.html to order the MSSP on Bed and Breakfast or http://www.smallbusinessnotes.com/op...axes/mssp.html Apparently it is not available online.

Sandy

[Black Bart]

B & B

Agree - "C," but I think the "new" life for commercial property is 39 rather than the former
31 1/2 years. They could get a cut life (15 years) for qualified restaurant property if the eating space was over 50% of the building, but that's probably not the case as the bed part will generally be bigger than the eating part.

[Black Bart]

Are you allowed to use section 179 on the equipment and furniture?

No.

This from IRS Publication 946, "How To Depreciate Property," page 17. "Property used for lodging. Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. However, this does not apply to the following types of property... .Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accomomodations is used by transients.

Just another sorry chapter in government's abandonment of the family values-oriented middle class American taxpayer in favor of the "noble poor." The moral of that particular reg, I suppose, is that if you'd bought a flophouse and catered to bums then you could write if all off. If not, forget it.

[BOB W]

Be aware....

... when using Schedule C there are limitations when expensing, in this case, 85% of household expenses when there is a loss (home office rules are used). These non deductible carryover expenses (suspended losses) can be lost when the property is sold, unlike Schedule E expenses, which are freed up upon the sale of the property.

Just a tid-bit for overall digestion.............

[jainen]

"new"

Yeah, "new" as in "just the last 15 years." I have accelerated depreciation of the brain. Speaking of old stuff, if anyone wants that MSSP on B&B I can email it.

[Armando Beaujolais]

No.

This from IRS Publication 946, "How To Depreciate Property," page 17. "Property used for lodging. Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. However, this does not apply to the following types of property... .Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accomomodations is used by transients.

Just another sorry chapter in government's abandonment of the family values-oriented middle class American taxpayer in favor of the "noble poor." The moral of that particular reg, I suppose, is that if you'd bought a flophouse and catered to bums then you could write if all off. If not, forget it.

That's not what they mean by "transient."

TC Memo 2004-188, Shirley v. Commissioner:

"Accommodations shall be considered used on a transient basis if the rental period is normally less than 30 days."

They use the term "transient workers" talking about travel expenses. Bill Gates could be a transient worker if he maintained no fixed home and no fixed business locality.

[Unregistered]

"just purchased a Bed and Breakfast and was wondering the best way to set up the personal vs. business usage. We use about 15% of the building for our personal living space and the rest is either shared or the guest rooms. Do I take 85% of the cost (less land) and depreciate it over 27.5 years?"

You can only depreciate the space used exclusively for business. The shared non living space is nondepreciable. That is stated in the MSSP.

Most bed and breakfest are just hotels/motel. If the average stay is 7 days or less, the activity is not considered a rental activity, so it would be Schedule C business. It was also mentioned that if owner provides signfincant services that would also make it Schedule C business.

It would have to 39 property becuase it wouldn't meet the definition of residential rental where 80% of it rent comes nontransient people.

[Black Bart]

Beau

That's not what they mean by "transient. "Accommodations shall be considered used on a transient basis if the rental period is normally less than 30 days." They use the term "transient workers" talking about travel expenses. Bill Gates could be a transient worker if he maintained no fixed home and no fixed business locality.

Would it be possible for you to preface your blunt Yank replies ("That's not what they mean...") with a variation of the response I suggested previously to Jainen, i.e., "pretty please"? An acceptable polite response might be something along the lines of "With regard to the discerning theories advocated by my esteemed Southern colleague, Bubba Doe; I, while hesitant to cast doubt upon the wisdom of his profound conclusions, most reluctantly must beg to differ as to...."

Okay, now where was I? Oh yeah, S-179. Look, my Pub. 17 quote said that T/P couldn't claim 179 for lodging equipment with the exception that it could be if it was used by transients (you say that's anybody staying under 30 days). Since probably 98% of all guests will stay only a day or two, maybe three or four, then, by your definition, almost everybody is a transient. And, if that's so, then what is the whole purpose of the first line in the pub reg saying owner can't take 179? If you are right, then the main body of the whole regulation doesn't apply to hardly anybody and is completely invalid except for the transient exception clause--therefore he could take 179 on the stuff unless you're wrong (perish the thought).

RSVP

[jainen]

a generous spirit

My dear Mr. Bart:
Thank you for bringing this important rule to my attention and especially for the courtesy in guiding my understanding. I beg your patience while I come to terms with my own short-sightedness. The answer seems so obvious now that you have shown the way. It takes a generous spirit like yours to let everybody be a bed-and-breakfast guest, if only for a day or two. And that generosity flows through to the innkeeper taking the full deduction. How embarrassed I am, sir, for my curt post yesterday. You were so gentle in correcting my number, and kindly let the larger error go unannounced. If you please, may I rely on your sage advice in the future?

[Black Bart]

Well, okay, but

actually I wasn't talkin' to you. I was addressing the insensitive, tactless, inexcrupulous scoundrel, Armando Beaujolais. I merely mentioned you in passing as a point of reference (you have already been granted absolution).

Thank you for noticing my generosity of "spirit" and charitable deference in allowing all comers to be transients and B&B'ers if they wish. Please think nothing of those (how to say this?) embarassing "short" posts as all is forgiven and you may return to the fold. As to future sage advice, It is, of course, a given that all prodigal children may rely on the guidance of their elders from time to time.

By the way, are you sayin' you're "fer" or "agin" givin' the owner 179?