Short Term Rental for Tax Benefits

[Tahoe1305]

Considering purchasing my neighbors house to utilize as a STR.

Would allow us to self manage, pay our young kids to build an early (legal) Roth retirement (vs just giving them money). And allow some passive write offs even if I don’t go for bonus depreciation (which we may attempt).

Anyone in the group do something similar? Lessons learned? Things I’m not thinking of?

My goals are to decrease my W2 tax burden and pay the family money as easily as possible.

I’ve owned many long term rentals before (and still do), nothing in the short term realm to date though. Taxes and having to pay a lot of them is actually kinda new too.

 

[RickfromPA]

1st you mentioned STR. You will want to keep the average stay to 7 days or less. This will allow you to depreciate the property similar to a hotel (39yr) as compared to a house (27.5yr).

If your average stay is greater than 7 days, you need to qualify for Real Estate Professional (REP)with involves 750hrs/year of managing real estate. These hours include everything from scheduling tenants, maintenance, cutting grass, etc.

If you, or your spouse, doesn’t qualify to be considered a REP, you are limited in the deduction you can claim if your rental generates a lose. You will only be able to offset the rental income which is considered passive per the IRS.

If you are a REP, OR keep the average stay to 7 days or less, that changes the income from passive to ordinary and you are able to use the lose against W2 earnings.

Look into STR loophole for more details.

I’m a CPA and provide cost segregation services. We deal with these situations weekly. This is a high level explanation but let me know if you have more questions.

 

[Tahoe1305]

1st you mentioned STR. You will want to keep the average stay to 7 days or less. This will allow you to depreciate the property similar to a hotel (39yr) as compared to a house (27.5yr).

If your average stay is greater than 7 days, you need to qualify for Real Estate Professional (REP)with involves 750hrs/year of managing real estate. These hours include everything from scheduling tenants, maintenance, cutting grass, etc.

If you, or your spouse, doesn’t qualify to be considered a REP, you are limited in the deduction you can claim if your rental generates a lose. You will only be able to offset the rental income which is considered passive per the IRS.

If you are a REP, OR keep the average stay to 7 days or less, that changes the income from passive to ordinary and you are able to use the lose against W2 earnings.

Look into STR loophole for more details.

I’m a CPA and provide cost segregation services. We deal with these situations weekly. This is a high level explanation but let me know if you have more questions.

Thank you. Don’t plan or think we will be able to qualify for REP. So the STR route is what we are after, keeping it under 7 days shouldn’t be hard.

I plan to look for a local CPA to provide similar services. Drop me a DM, would love to chat more if you’re willing. I’m also curious what folks pay for those kind of services.

 

[Beendare]

The main danger as I see it is local Government regs.

A buddy owned 2 ST rental units in Tahoe and the local gov shut those down a couple years ago. Same for another buddy in a Socal beach town. I think both went to one month minimum rentals which changes the dynamic a lot and it slaughtered the buddy with the Tahoe rentals forcing him to sell. The Socal guy got hit- I don't know how hard- but they kept the place.

BTW, the ST rental shutdown in Tahoe hurt the local economy.

 

[Tahoe1305]

The main danger as I see it is local Government regs.

A buddy owned 2 ST rental units in Tahoe and the local gov shut those down a couple years ago. Same for another buddy in a Socal beach town. I think both went to one month minimum rentals which changes the dynamic a lot and it slaughtered the buddy with the Tahoe rentals forcing him to sell. The Socal guy got hit- I don't know how hard- but they kept the place.

BTW, the ST rental shutdown in Tahoe hurt the local economy.

Yeah risky for sure. Current spot is very loose with regs still. Worst case I’ll convert to a long term. I have a few of those already.

Just want to dip my feet in ST and being next door mitigates a bit of risk for us.

 

[HNTR918]

You or your wife need to qualify as a REP to make it worth while.
Also, you need to make sure no other person spends more time than the qualified REP. (Ex. Cleaner)

 

[colby12]

1st you mentioned STR. You will want to keep the average stay to 7 days or less. This will allow you to depreciate the property similar to a hotel (39yr) as compared to a house (27.5yr).

If your average stay is greater than 7 days, you need to qualify for Real Estate Professional (REP)with involves 750hrs/year of managing real estate. These hours include everything from scheduling tenants, maintenance, cutting grass, etc.

If you, or your spouse, doesn’t qualify to be considered a REP, you are limited in the deduction you can claim if your rental generates a lose. You will only be able to offset the rental income which is considered passive per the IRS.

If you are a REP, OR keep the average stay to 7 days or less, that changes the income from passive to ordinary and you are able to use the lose against W2 earnings.

Look into STR loophole for more details.

I’m a CPA and provide cost segregation services. We deal with these situations weekly. This is a high level explanation but let me know if you have more questions.

Can you explain these benefits in as simple dumbed down English as possible? I’ve tried to google it and still can’t get a solid grasp. I am moving out of my current house and am looking at options similar to the OP but am completely unaware of the potential tax benefits.