Thank you for the video! Super helpful. I am having difficulty finding any information about the tax savings after you claim the bonus depreciation year 1. So in this example, what would the tax savings be in the years following year 1?
Is there a limit on your AGI beyond which you can't deduct your STR losses against your W2 income? Meaning, does this get phased out after a certain AGI?
The "short term loophole" described in this video is a way to deduct the STR losses without any income limits. There is also a provision to take up to $25k in losses against your income if your income is under $150k (it phases out starting at $100k). That is unrelated to what he's talking about in this video. (I'm a tax pro but not affiliated with this channel.)
Will this these taxable concepts apply for our short term rental, even if it’s also our primary residence? The depreciation concept in the passive income and such if it is our primary residence as well as our short term rental property?
This is generally only available one time per property, but you can buy a new property each year and do it every year (until bonus depreciation phases out in 2026, in which you can still do it, but it will be less powerful)
Ok. But one cost seg company said my building value was 623K and another said it was 125K based on county records. How do you determine value of land v improvements, Im in So Cal. Purchased property for 800K. 25% would mean a 200K depreciation but IRS would say :"Hey that's California. Your land is worth so much more. Welcome to AUDIT HELL.
Thanks for this info Brandon. If I buy a Second home and stay there for ~15 days and rent it out as short term for the rest if the year, can i do that buy putting 10% down? And will the fixtures furniture, repairs be written off?
Is it possible to short term rent your primary residence for a percentage of the year , use material participation and then deduct paper losses against W2 income? Could you do a video about that?
Is there an issue with taking the full 100% bonus depreciation with a cost segregation study if the STR is only “in service” for the last few months of the year?
You can still take the bonus depreciation even if it has only been in service for a portion of the year. We generally recommend you do have at least a handful of bookings by the end of the year to substantiate the average rental period. (I'm a tax pro but not associated with this channel.)
Hey brandon .love your podcast really learn alot . im a builder in the memphis tn area . iformed an investment company or llc and moved these new homes over to it like in november 2023 . imleasing these out , but i need to do my cost seg and bonus depreciation .Iwas wanti ng to see if you could help me with these being out of town . if so how can i find your email or how to contact
Really interesting video. I have 4 short term rental properties that will gross roughly $230k this year in income. Really interested to figure out how this strategy would help me from a tax standpoint.
why is stock income considered as non-passive income, does that mean if I lose money from stock investment, I can deduct that loss with my w2 income and won't subject to the 3000 capital loss limit?
When I explain it, I say that portfolio/investment income is a 3rd bucket that is also treated separately from passive (real estate) income and non-passive W-2/business income. So stock investment losses above that $3000 exception can't be deducted from your W-2 income, and passive real estate losses can't either (except for a handful of exceptions, including the one he talks about in this video). I'm a real estate tax pro but not affiliated with this channel.
How soon after the first year can you convert it into a long-term rental without bonus depreciation recapture? How soon can you turn it over to a short term rental property manager without recapture?
@@TheRealEstateCPA There's no mention of which schedule the income should be reported on. Would you put this on Schedule E or Schedule C? There seems to be some debate.
Hi Brandon, Thank you so much for your informative content. I am closing on a cabin on 12/22/22. I'd like to qualify for bonus depreciation in 2022. Is there a set number of nights that I need to rent it out in 2022 to qualify for bonus depreciation in 2022? Thanks!
There isn't a specific minimum, but it's generally recommended that you have had at least a handful of short term bookings to clearly establish that it is a short term rental. I'm not with Tax Smart, but I am a tax professional with a focus on real estate so I'm answering some of these unanswered questions in the comments.
How feasible is it to satisfy material participation while investing in an out of state short term rental such as a beach condo? If I manage the property myself however pay for cleaning services etc.
Hello, if you do not offer extra services and do not materially participate, but your average stay is under 7 days will it still go on schedule E? We would hire a PM, with that situation can the cash flow from a STR take out your carryover passive losses from your long term rental properties? We want to buy a STR that won’t produce a loss on paper and want to reduce the STR’s taxable income with our long term rental portfolio losses.
Yes, if you aren't materially participating, you can keep the STR in the passive bucket so your long term rental losses can offset the STR income. Whether it goes on Schedule E is based on whether you provide "substantial services" (things like cleaning WHILE the guest is staying there), so that's actually a whole different topic. I'm a real estate tax pro but not associated with this channel.
Brandon, why do you multiply the loss determined by the cost segregation study by the tax rate? Also, in your example, what happens to the remaining losses from the cost seg above $40K?
The loss determined by the cost segregation isn't all money that you get back, it's just the amount of the deduction that you can subtract from your income when calculating your taxes. That $40k in tax savings that he calculated is the entire savings from all of the cost seg / bonus depreciation.
Great video. I’m in the process of purchasing a short term rental and wondering how many times I’d need to rent it out this year to take advantage of this tax savings? Will look into your services. Thank You.
Hi Brandon! Big lover of IPAs here too. Try Two Hearted by Bells. Voted best in America and from the lovely mitten state. Question: I spoke with my tax strategist after listening. He told me that if you make over $150k a year, that income coming from your STR would qualify as "supplemental" and would be carried over instead. And the only way to use this is to qualify as a real estate professional. I pushed back and explained that income is either passive or non-passive, but he said there is a 3rd category "supplemental" where this would fall under. Is this incorrect if you are using the STR loophole?
Hello. I’ve filled out an inquiry form and sent an email via your website but still have not received a response after six weeks? Is this the typical response time for your company?
@@brandonhall8446 Thank you for your response. Unfortunately I did not receive the email and am not sure where the email address came from that you sent. Please provide me with an email address and I will send my correct email to you. Thank you again for your response.
@@brandonhall8446 Thank you for your response. Unfortunately I did not receive the email and am not sure where the email address came from that you sent. Please provide me with an email address and I will send my correct email to you. Thank you again for your response.
Except the problem is you have to find a short term rental property that isn’t cash flow negative otherwise those tax savings just go to cash inflow on the property
Just got a 45k depreciation/tax write off because of cost seg, which made a HUGE offset in my taxable income! THIS IS HUGE!! Money in my pocket!!
did you hire someone to do the cost seg study? or you did it yourself?
Is this a one time thing or can you do it every year?
@@monte8151 It's generally just a one-time thing, unless perhaps if you later did major renovations on the property.
Thank you for the video! Super helpful. I am having difficulty finding any information about the tax savings after you claim the bonus depreciation year 1. So in this example, what would the tax savings be in the years following year 1?
When you sell the property don't you have to pay back all those deductions via depreciation recapture?
Is there a limit on your AGI beyond which you can't deduct your STR losses against your W2 income? Meaning, does this get phased out after a certain AGI?
I read somewhere ~150k for single; ~300k if married filing jointly
The "short term loophole" described in this video is a way to deduct the STR losses without any income limits. There is also a provision to take up to $25k in losses against your income if your income is under $150k (it phases out starting at $100k). That is unrelated to what he's talking about in this video. (I'm a tax pro but not affiliated with this channel.)
Will this these taxable concepts apply for our short term rental, even if it’s also our primary residence? The depreciation concept in the passive income and such if it is our primary residence as well as our short term rental property?
Is there some kind of proof I would need it rented 7- days? Some times I have a monthly rental.
Do you have to buy this as a “investment property” or can you buy it as owner occupied?
I rent out two rooms in my house short term airbnb and a additional room is long term. Trying to figure out where I stand in this.
Does this also work if you own an office building? Or is this just for STVRs?
Does the property need to be on my name or my llc ?
Brian I need help
I can’t find a CPA in my area that understands this investment tax plan
Can you do this every year or just one time?
This is generally only available one time per property, but you can buy a new property each year and do it every year (until bonus depreciation phases out in 2026, in which you can still do it, but it will be less powerful)
can the short-term rental be a commercial property that is rented out for events? thanks for the video
Ok. But one cost seg company said my building value was 623K and another said it was 125K based on county records. How do you determine value of land v improvements, Im in So Cal. Purchased property for 800K. 25% would mean a 200K depreciation but IRS would say :"Hey that's California. Your land is worth so much more. Welcome to AUDIT HELL.
Thanks for this info Brandon. If I buy a Second home and stay there for ~15 days and rent it out as short term for the rest if the year, can i do that buy putting 10% down? And will the fixtures furniture, repairs be written off?
Wish I'd known this 3 years ago when I was still a W2 worker and purchased a STR!
What happens with this bonus depreciation when/if you sell? TIA
Is it possible to short term rent your primary residence for a percentage of the year , use material participation and then deduct paper losses against W2 income? Could you do a video about that?
You can't personally use the residence for more than 14 days or 10% of the fair rental days or the losses will be disallowed from the STR.
@@TheRealEstateCPA Ok thank you
@@TheRealEstateCPA how about- the STR in your home is separate from the rest and not in use other than STR?
@@lacesoutdany @tax smart real estate investors What if its a duplex and you personally use one and rent the other as a STR
@@TheRealEstateCPA What if its a duplex and you personally use one and rent the other as a STR
Is there an issue with taking the full 100% bonus depreciation with a cost segregation study if the STR is only “in service” for the last few months of the year?
Any luck finding an answer for this?
You can still take the bonus depreciation even if it has only been in service for a portion of the year. We generally recommend you do have at least a handful of bookings by the end of the year to substantiate the average rental period. (I'm a tax pro but not associated with this channel.)
Does this work to offset the spouses earned income if they file together?
Yes (I'm a tax pro, but not with this channel, I'm just answering some questions here).
Hey brandon .love your podcast really learn alot . im a builder in the memphis tn area . iformed an investment company or llc and moved these new homes over to it like in november 2023 . imleasing these out , but i need to do my cost seg and bonus depreciation .Iwas wanti ng to see if you could help me with these being out of town . if so how can i find your email or how to contact
Really interesting video. I have 4 short term rental properties that will gross roughly $230k this year in income. Really interested to figure out how this strategy would help me from a tax standpoint.
why is stock income considered as non-passive income, does that mean if I lose money from stock investment, I can deduct that loss with my w2 income and won't subject to the 3000 capital loss limit?
When I explain it, I say that portfolio/investment income is a 3rd bucket that is also treated separately from passive (real estate) income and non-passive W-2/business income. So stock investment losses above that $3000 exception can't be deducted from your W-2 income, and passive real estate losses can't either (except for a handful of exceptions, including the one he talks about in this video). I'm a real estate tax pro but not affiliated with this channel.
How soon after the first year can you convert it into a long-term rental without bonus depreciation recapture? How soon can you turn it over to a short term rental property manager without recapture?
You can convert it (called a "change in use") to LTR anytime without having to worry about recapture.
@@TheRealEstateCPA There's no mention of which schedule the income should be reported on. Would you put this on Schedule E or Schedule C? There seems to be some debate.
Hi Brandon. Thank you for great content.
Does the cost-seg need to be completed by Dec 31 2021 to use for 2021 tax return?
No you can complete it anytime before you file the return.
Hi Brandon, Thank you so much for your informative content. I am closing on a cabin on 12/22/22. I'd like to qualify for bonus depreciation in 2022. Is there a set number of nights that I need to rent it out in 2022 to qualify for bonus depreciation in 2022? Thanks!
There isn't a specific minimum, but it's generally recommended that you have had at least a handful of short term bookings to clearly establish that it is a short term rental. I'm not with Tax Smart, but I am a tax professional with a focus on real estate so I'm answering some of these unanswered questions in the comments.
How do I find a CPA that has a clue about these strategies?
How feasible is it to satisfy material participation while investing in an out of state short term rental such as a beach condo? If I manage the property myself however pay for cleaning services etc.
Pretty tough to substantiate at a distance. It can be done if you have a good software system set up. You'll have to outwork your cleaners.
@@TheRealEstateCPA Would love to hear more about how can it be done if you have a good software system setup. Brandon, please clarify.
Hello, if you do not offer extra services and do not materially participate, but your average stay is under 7 days will it still go on schedule E? We would hire a PM, with that situation can the cash flow from a STR take out your carryover passive losses from your long term rental properties? We want to buy a STR that won’t produce a loss on paper and want to reduce the STR’s taxable income with our long term rental portfolio losses.
Yes, if you aren't materially participating, you can keep the STR in the passive bucket so your long term rental losses can offset the STR income. Whether it goes on Schedule E is based on whether you provide "substantial services" (things like cleaning WHILE the guest is staying there), so that's actually a whole different topic. I'm a real estate tax pro but not associated with this channel.
Brandon, why do you multiply the loss determined by the cost segregation study by the tax rate? Also, in your example, what happens to the remaining losses from the cost seg above $40K?
The loss determined by the cost segregation isn't all money that you get back, it's just the amount of the deduction that you can subtract from your income when calculating your taxes. That $40k in tax savings that he calculated is the entire savings from all of the cost seg / bonus depreciation.
This is simply unbelievable. I gotta read tax code more…
Great video. I’m in the process of purchasing a short term rental and wondering how many times I’d need to rent it out this year to take advantage of this tax savings? Will look into your services. Thank You.
The typical recommendation is that it's a good idea to have at least a few bookings to substantiate that it's a short term rental.
Hi Brandon! Big lover of IPAs here too. Try Two Hearted by Bells. Voted best in America and from the lovely mitten state.
Question: I spoke with my tax strategist after listening. He told me that if you make over $150k a year, that income coming from your STR would qualify as "supplemental" and would be carried over instead. And the only way to use this is to qualify as a real estate professional. I pushed back and explained that income is either passive or non-passive, but he said there is a 3rd category "supplemental" where this would fall under. Is this incorrect if you are using the STR loophole?
Did you ever get an answer on this?
100 hours over what time period??
During each calendar year.
Seems like a Max Headroom filter
Hello. I’ve filled out an inquiry form and sent an email via your website but still have not received a response after six weeks? Is this the typical response time for your company?
According to our CRM we sent you emails on 9/14, 9/16, 9/21, and 9/27. These were sent to your tbrowndpm email. Can you double check? Thanks :)
@@brandonhall8446 Thank you for your response. Unfortunately I did not receive the email and am not sure where the email address came from that you sent. Please provide me with an email address and I will send my correct email to you. Thank you again for your response.
@@brandonhall8446 Thank you for your response. Unfortunately I did not receive the email and am not sure where the email address came from that you sent. Please provide me with an email address and I will send my correct email to you. Thank you again for your response.
Brandon, did you really have to put "x MP" on this public video? Like cancel Michael Plaks? Seriously, buddy? ;)
Except the problem is you have to find a short term rental property that isn’t cash flow negative otherwise those tax savings just go to cash inflow on the property
Most STRs that we see are cash flow positive.
My accountant confirmed that this is legit. We're doing an amendment to our 2022 taxes and will hopefully get a refund:)
He lost me when he multiplied by his marginal tax rate