Writing Off Expenses For Short-Term Rental Furnishings

Article Summary

Strategic tax deductions for short-term rental (STR) furnishings directly impact profitability for hosts, real estate investors, and property management businesses. Under U.S. federal law—and varying state provisions—furnishings qualify as business expenses but trigger complex IRS rules governing depreciation schedules, capitalization thresholds, and “ordinary vs. necessary” tests. Misclassification (e.g., expensing improvements vs. repairs) or inadequate record-keeping risks audits, disallowed deductions, and penalties. Active participation in rental management is mandatory to claim losses. With bonus depreciation phasedowns (80% in 2023, 60% in 2024), immediate financial planning is critical to maximize deductions before thresholds tighten.

What This Means for You:

• Immediate Action: Itemize all furnishings purchased or upgraded, separating costs below/above $2,500 per unit (IRS de minimis safe harbor threshold).
• Financial Risks: Deductions denied if furnishings deemed “lavish or extravagant” (IRS Topic No. 704) or if rental fails IRS “profit motive” tests.
• Costs Involved: State sales tax on furnishings may be deductible if no STR occupancy tax exemption exists (e.g., Texas vs. Louisiana).
• Long-Term Strategy: Elect Section 179 expensing or bonus depreciation for high-value items to accelerate write-offs before phaseouts.

Explained: Writing Off Expenses For Short-Term Rental Furnishings

The IRS defines deductible business expenses under Publication 535 as costs that are “ordinary and necessary” for generating rental income. Furnishings—including furniture, appliances, décor, and linens—are capital assets depreciated over their useful life (typically 5–7 years under MACRS). Federal tax code §162(a) and §263(a) distinguish between immediate deductions (e.g., minor repairs under $2,500) and capitalized improvements requiring depreciation. State laws may impose additional sales/use tax obligations on furnishings (e.g., California BOE Regulation 1525).

For STRs classified as businesses (14+ rental days/year with active management per IRS Publication 527), furnishings are not personal property if exclusively used for rentals. However, mixed-use properties (e.g., primary residence rented occasionally) must allocate expenses based on rental vs. personal days. Under federal rules, non-business use exceeding 14 days or 10% of rental days invalidates full deductions.

Writing Off Expenses For Short-Term Rental Furnishings Principles:

The “ordinary and necessary” standard (IRS §162) requires furnishings to be common for STRs in the taxpayer’s geographic market. For example, a mountain cabin may deduct basic furniture as ordinary but not luxury hot tubs unless common for comparable rentals. “Necessary” is interpreted as “helpful and appropriate,” not essential. Expense apportionment applies if furnishings serve dual purposes (e.g., a sofa used by the owner during maintenance visits). Detailed logs must substantiate business-use percentage.

Standard Deduction vs. Itemized Deductions:

Rental furnishings are deducted on Schedule E (Form 1040), separate from standard/itemized personal deductions. Hosts may take the standard deduction ($13,850 single/$27,700 joint in 2023) while still deducting furnishings as business expenses. Itemizing via Schedule A is unrelated to STR deductions—a key distinction often overlooked. Depreciation recapture rules (§1245) require reporting gains if furnishings are sold for more than their depreciated value.

Types of Categories for Individuals:

Individuals must classify furnishings as: 1) Direct Costs (beds, tables, lighting), 2) Indirect Costs (delivery, assembly, protective covers), or 3) Repairs/Maintenance (reupholstering, replacing broken hardware). Items under $2,500 per unit qualify for the de minimis safe harbor election (IRS Rev. Proc. 2023-34), allowing full deduction in the purchase year. Luxury items (e.g., designer furniture) must pass the “predominant local market standard” test to avoid IRS challenges.

Key Business and Small Business Provisions:

Businesses deduct furnishings via: 1) Bonus Depreciation (80% in 2023; requires property with ≤20-year recovery period), 2) Section 179 Expensing ($1.16M max in 2023; subject to income limits), or 3) Depreciation (straight-line or accelerated under MACRS). Materials/labor to install built-ins (e.g., cabinets) must be capitalized. Small businesses with ≤$27M revenue may use the de minimis safe harbor without IRS capitalization.

Record-Keeping and Substantiation Requirements:

Federal law mandates receipts, invoices, and asset descriptions (IRC §6001). Records must show purchase date, cost, business-use percentage, and depreciation method. States like New York require retention for 3 years post-filing, while federal audits (Statute of Limitations) allow IRS review up to 7 years for unreported income. Insufficient records during audits lead to deductions disallowed under the Cohan Rule, which permits reasonable estimates only if credibility is proven.

Audit Process:

STR furnishing audits focus on: 1) Business vs. personal use ratios (time/space tests), 2) Classification as repairs vs. improvements, and 3) Luxury item justification. The IRS may request lease agreements, guest logs, or photos to verify furnishings’ existence and condition. Hosts must provide Form 4562 (depreciation) and reconcile deductions against reported income. Proactive strategies include pre-apt appraisals for high-value items and separate bank accounts for STR expenses.

Choosing a Tax Professional:

Select a CPA or Enrolled Agent specializing in STR tax law. Verify experience with local regulations—e.g., Oregon requires STR licenses impacting deductible fees—and bonus depreciation strategy alignment. Avoid preparers unfamiliar with IRS cost segregation (Rev. Proc. 2023-15) for furniture grouped as single assets.

Laws and Regulations Relating To Writing Off Expenses For Short-Term Rental Furnishings:

Federal: IRS Publication 527 (Rental Property), §1.263(a)-3(f) (de minimis safe harbor), Rev. Proc. 2023-14 (depreciation tables). State: California BOE Regulation 1476 (sales tax on furnishings), Florida HB 7067 (STR tax exemptions). STR hosts must comply with LOCAL licensing statutes—e.g., Denver requires licenses ($25–$500) deductible as business fees.

People Also Ask:

Q1: Can I write off furnishings I already owned before converting my home to a STR?
Yes, but only the lower of market value or original cost at conversion time. Basis is adjusted for depreciation (IRS Topic No. 704).

Q2: Are mattresses immediately deductible?
If ≤$2,500 per mattress under de minimis safe harbor—eligible. Above threshold, depreciate over 5 years.

Q3: How do states tax furnishings for STRs?
Varies: Texas taxes furnishings at 6.25% sales tax (deductible federally), while Hawaii’s GET exemption for rentals requires itemization.

Q4: Can delivery fees be deducted separately?
Yes—ordinary business expense. No depresciation required.

Q5: Are art pieces deductible?
If priced comparably to market standards and used solely for rental, yes. Luxury artwork over $5k may trigger IRS scrutiny.

Extra Information:

IRS Publication 527: Rental Property Deductions (furnishing classifications)

California STR Tax Guide: State-specific rules on sales tax for furnishings

Expert Opinion:

Neglecting to segregate personal and STR furnishings, misapplying de minimis thresholds, or underestimating state tax nuances leads to overpayment or penalties. Proactive documentation and tax-engineered purchasing schedules optimize write-offs under phasedown bonus depreciation windows. Engage specialized tax counsel before large furnish-out purchases to model asset lifespans against changing federal rates.

Key Terms:

• Short-Term Rental Furniture Depreciation Rules
• IRS De Minimis Safe Harbor for Rental Expenses
• STR Furnishing Capitalization Thresholds
• MACRS 5-Year Property Depreciation
• Mixed-Use Furnishing Allocation Laws
• Section 179 Expensing Rental Property
• Record-Keeping Requirements for STR Taxes

*featured image sourced by DallE-3