This is an interesting question because there doesn't seem to be any solid consensus on whether hours spent on a property before it is placed in service as a rental can count as material participation hours in that property. Those hours do count as real estate professional hours if you're going for that. But whether they count for material participation seems to be a subject of a lot of uncertainty. A lot of tax professionals say that you can't count hours as participating in an activity if the activity hasn't begun operations as a business yet. I believe Ryan has said in one of the podcasts that hours before the property is in service don't count for material participation, but I don't know if that has been his consistent position on that or if I understood his statement on that correctly. Other prominent real estate tax professionals seem to be split on this issue, some say yes and some say no.

All you need is financial software that makes it easy to put transactions into categories. Quicken is actually just fine and does everything you need for rental real estate. But if you prefer to use a website, my next choice would be Baselane because it also does everything you need and it's free. REI Hub has a nice design, but personally I think the rental expense categories it uses are not ideal, but it's a totally fine option as well. The only one I would definitely not recommend would be Quickbooks. Quickbooks is fine if you're an accountant and you've taken the time to be trained in Quickbooks, and it's nice to be able to do fancy things like journal entries. But it's also slow, expensive, and just a pain to deal with compared to other options. When I have tax clients who have used QuickBooks, it's almost always a disaster and just a mess compared to something simpler like Baselane or REI Hub that is designed for rental real estate.

It's a good practice to always file an extension even if you file your tax return on time, simply because the extension also extends the amount of time you have to file an amended return if you later discover any issues. For some types of elections that you can only make up until the extended due date of the return, it gives you until October to make those elections if you miss something. And for the final date to be able to amend the final return, it gives you another six months additional at the end of the usual three-year time span. And there's no reason not to file an extension.

There are going to be some numbers that are reported differently for tax purposes than what is in your bank ledger and your accounting software. It's ok if those things don't always match up, it gets sorted out when you or your accountant collect other documents for your taxes. For example, if your property taxes and/or insurance are paid by your mortgage company. I would just let Baselane track the net payout to your bank account. But when filing your taxes, you can look at the Airbnb earnings report and put on Schedule E what they report as the gross earnings, and their commission as an expense. And then if you want, you can double check that the net difference matches your Baselane report.

No, there really aren't any catches to it. There may be unusual situations where maybe if your income is low this year, you would rather depreciate an item over a period of time rather than get the immediate expense in the current year. But most of the time, I would say it's to your advantage to use it when you can. Don't forget to include the election statement on your tax return.