I have rented a room in my house on AirBNB for part of the year. Turbotax is not clearly structured to handle AirBNB rentals, but using guidance in the online application, I noted my income and associated expenses in the rental income portion. Turbotax asked me for how many days I rented, but it never asked for a percentage of the house that was rented. I am now concerned that Turbotax may have assigned too much of the insurance of my mortgage to the AirBNB and that it has not properly deconflicted with the home mortgage interest deduction. Any advice?
While TTX can handle a room rental where you rent out a part of your home, it's not that great with rentals that are more like a hotel or hostel. It's not that the program is not clearly structured as much as it is the IRS produced tax forms (SCH E and SCH C) are not clearly structured for situations like yours. That's because of the way the IRS tax forms are set up by the IRS (not by TurboTax). It requires the landlord to have some knowledge of just how such property is treated tax-wise. Not so much on the federal level, as on the local level.
The SCH E is more for long term rentals that produce passive income. Whereas a short term rental in the format of a hotel or hostel is in some cases, more of an active business. What's the difference?
First, you have to define "short term rental". The definition of that varies location to location, as it can be defined as low as the county/city level. I know in my county a short term rental is defined as a lease of 30 days or less, for any one period in a calendar year.
Generally, for such short term rentals the landlord will provide recurring services. For example, maid service to make beds and clean bathrooms, restock linens, and the such. If set up as a hostel and breakfast is included in the deal, then that too is a recurring service.
So in the case of a short term rental that provides recurring services, that's not reported on SCH E at all. That income is considered earned income (as apposed to passive rental income) and is therefore reported as a business on SCH C.
Now if you're doing a long term rental and just suing AirB&B to find your renter, the program actually can handle your situation just fine. The important thing is to pay attention to the wording on each and every screen. It's just as important to read and entire screen too, before making any selections or entering any data. For example, some screens say to select the one that applies, while other screens will say to select *all* that apply.
Many times there are situations where if you acquired the property in the middle of the year, or you converted the property or the room to rental or business use in the middle of the year, you may be unsure of what to select - rented whole year? Or not rented the whole year? Almost every screen has small print at the bottom which you may need to scroll down to see it. For many that small print can make all the difference in making the correct selections and entering the correct data. So that's another reason it's important to read everything before jumping to conclusions and risking providing the program incorrect data.
One common mistake I see that occurs because people do not read the small print, is that they will enter a number greater than zero when the program will ask for the number of days of personal use. If one reads the small print, they would know that personal use days before converting the property or room to a rental do not count, and therefore they should enter zero for personal use days.
Overall though, if you are familiar with the laws, rules, regulations and ordinances of your location as it pertains to rental property both long term and short term, the program will and can meet your needs at tax time, just fine.