Hi Clint , if you go own the STR as an LLC and you rent you property out less than 7 days and you satisfy the materially participation test ( do both owners need to satisfy it?) can then both owners take each 50% of the net loss to offset their individual w-2 active income
Hi Clint, I currently master lease 2 properties and started my cleaning company for STR. How do I structure these companies and how can I save on taxes if I do not own them?
Hi Clint, thanks for the great content! Assuming I am self managing and material participating... Can I include travel time 8hrs(2400 miles) each way and deduct travel expenses if I am going out to do repairs and set up on my str?
Thanks for the video, Clint! My partner is a high-income earner, and she purchased a lake property in 2022, which has been used as a short-term rental. A few questions: 1. The rentals is managed by a management company. My partner has spent at least +100hrs/year in the house, doing different type of massive upgrades, maintenance, paintings walls, creating hiking trails in the lot, etc. The house is 2hrs away from her primary residency, so there is a lot of driving involved too. Will this type of activities count toward the +100hrs material participation? I am 100% sure that nobody else involved in the operation of the rental spends more time than her. 2. She uses the house some weekends during the year. Is there a rule about how much time can you spend in the house, to be considered short-term rental? 3. The house was purchased in 2022 and is currently using depreciation in a linear schedule. Is it too late to do a cost segregation and take advantage of the accelerated depreciation schedule? Thanks!
Awesome video. My CPA advised me not to execute this strategy without an LLC though, or I am sure to be audited. I make 150k W2. It is a primary residence 3-unit Apt bldg with 1 unit being STR, managed by myself, and far exceeding 100 hours… Thoughts?
If I start doing this in December, would it still qualify? How do you proove to the IRS the 100 hours of material participation... any way to do that while having a management company? Thanks.
So we are way behind the curve. We have a STR for 3 years. Have put $50,000 fixing, furnishing, upkeep, but have only been doing standard deductions. Is it worth it now to do a cost segregation? Also should we move the home to a LLC? Do we get more deductible income? If so what?
Are there any benefits for an operator of a mid term rental? I rent to travel nurses who have 2-3 month contracts at a time. The properties are furnished and I manage myself.
Just purchased our first second home and will use it as a STR. Any videos that highlight how to create LLCs or if its worth doing it? Or do we operate it from our personal account?
I thought that the 100 hour test was --- 100 hours AND more than any other one person working on the STR? I would think a cleaning person will do more work than an owner who's self-managing.
Great great video, thanks! Is there a limit on the losses you can deduct using this strategy? For example, if my w-2 is 500k, can deduct 500k loss entirely using this method (assuming all the conditions are legally met)? The example in the video seems to indicate it is ok, but I saw some comments mentioned 25000 limit and 150k w-2 income limit, which got me confused. Thx
@@ClintCoons thanks for your reply, can you pls clarify? If I meet the short term rental and material participation requirements, can I deduct $500k loss from $500k W2 income?
Great video! I have a question. How should I go about structuring these short-term rentals. Can I put them in a Series LLC? Or should I put it in a separate LLC that is owned by a Wyoming LLC?
Hello Clint, I went ahead and purchased a property, previous owner was already doing airbnb and has 17 reservations for december, I'm closing the property next week (early december), if I keep their reservations (they are offering to manage them for 15% fee) - would that not help me qualify for the 100 hours? I will be going very often to the property, and all the previous work finding the property already counts as many hours... If I don't take their reservations, I will have to start from scratch... What would you recommend? Thank you!
Bird in the hand is better than 2 in the bush. What stops you from managing the reservations? Also if the seller spends less than 100 hours managing the reservation and you spend 100 hours working on the property then you could qualify.
@@ClintCoons thank you! Yes. I’m going to take and manage those reservations as much as I can! This strategy is going to save close to 100k in taxes this year! Thank you!
Hi Clint, What about some over 30 days and some less than 30 days. Does one actually have to average all the rentals to make sure under 7 days or under 30 days on average? Thanks!
Depends on your strategy. If over 7 but under 30 then you must provide substantial services to the guests. Substantial services includes things such as daily maid service, airport transfers, excursion bookings, arranging catered meals, etc..
Yes that will make it difficult for you to hit the hours. The license won';t have an impact on this. The license would help with REPS status if you are active
Have a STR, filling married and w2 income above $150k combined. Average 7 days or less stays for guests and pass one of the 7 tests. I keep reading that $150k+ income doesn't qualify. Is that accurate?
The property I’m buying has already a maintenance service that cannot opt out. They can also do the listings in Airbnb etc, or I can do that part. If I create a website and promote it online to get my own tenants. Would that count for the 100 hours?
Glad I came across this comment section. I was struggling to decide what to do with a good amount of money in the bank doing nothing. I would be happy if you could advise me, as I am ready to go the passive income path
okay Vic, so generally speaking, investing calls for more knowledge. For this reason, it's crucial to have a strong support system (financial advisor) to lead you through, particularly while choosing assets. I work with (REGINA LOUISE COLLARO) a registered wealth manager and investment advisor. For the record, it has been the best experience for my finances. You may have heard of her because of how well-known her services are. She helped me become financially solid through investment, and now I profit from her passive income strategies on a monthly basis.Therefore, I'll suggest that you choose a reliable investment advisor for yourself..
That’s great , your investment advisor must be really good,I have seen testimonies of people using the help of investment advisors in making them more financial stable. Do you mind sharing more info on this person?
Regina Louise Collaro is based in the United States and can work with anybody irrespective of where they stay. If you would like more information on reaching her, you can conduct a search online.
personally, I'm blessed and realizing I'm not the only one working with Regina Louise Collaro. I will consider myself lucky. I've been able to feed and make a living through her advice and great work. For such a person as Regina, I owe her gratitude, support and endless prayers as it is not easy to gain access to such a competent and reliable adviser. Who isn't just wise but has all it takes to handle an investment and is good at what she does.
hi Clint, Does my airbnb property has to be in the US? We have airbnb property, soon properties,outside US and I wonder how to file tax on it since the pay out we are getting goes to our US bank account. Thanks
I find I get more tax loss from Schedule E than a Schedule C. I rent my lakeside cabin 3 weeks a year, to 3 families for 2k/ wk. I have a valid RE sales license. Not sure I could find a local tax pro who knows what you know for maximum Sch C advantages.
Hi Clint If you have a detached ADU and you use it strictly for STR use , are you subjected to the vacation home rules or can you follow the hotel tax rules ? Secondly if you own your hotel business in a Co LLC , do both owner required to full fill the 100 hours materially participate rule in order to both take 50% off their active income if they have a lost?
We own some long term rental. My spouse is real estate professional and I am W2. If we invest short term rental, what are the tax advantage or disvantage?
That gets a bit more complicated. Best to set up a strategy session with my firm to discuss because you want to use a master lease agreement to keep your STR a LTR on your schedule E.
You wouldn’t need to qualify for a STR since you would meet the other criteria as a Real Estate Professional via your wife. Its one or the other. The STR is just a loop-whole for those who cant meet the REP criteria. Now you just need to do the cost segregation study on your rental to offset your W2 income. Hope that helps.
What if you are not a real estate professional and you live in the house and rent a basement short term for les then 7 days about 4 times and you refinished with over 100 hours invested can you take some of the tax deductions you mentioned against your income. Great video thank you
I’m having an issue right now! My LLC is in Wyoming and the STR I’m getting is in Phoenix Arizona do I need an LLC for each STR and for my business bank account would I need one for each STR if each one had its own LLC?
Your content is truly valuable. I have a similar question. The lender is requiring that the LLC entity members must also be borrowers. Would that mean then that the WY LLC would have to be named as the borrower on the loan documents? Thank you in advance.
@@theinvestmentguy9041 I believe so yes however you could deed her an interest in the property but do not record the deed, also if you live in a community property state and you did not take title as your separate property it might be considered owned by her.
To reduce your taxes you will need to own the unit then perform a cost seg study to generate losses. Another option if you go the lease route would be to consider using a corporation to lease the property then sublease and take write offs through your corporation.
Hi Clint, great video! Question; when posting all my start up cost such as furniture, pillows, bed lines etc do I categorize them as capital expenditures in QB?
Love the video and subscribed to this channel and Toby's. I get that it is great that you can put this on your schedule C and now take these non-passive losses and deduct from your other non-passive income (e.g., W2 income) but are you now liable for self employment tax?
Hi Clint! Awesome video! I want to clarify this. We have a property that we do both MTR & STR. To get the average rental days: do we just add all the days the property is occupied and divide by number of guests who booked it? Or, let say we have 3 guests who booked 30-90 days and 15 guests who booked less than 7 days- will this second situation be the way to compute for the average rental period? Thank you again!
Is this still accurate? It is my understanding that you can only deduct up to $25,000 and if you are making $150k or more on w-2 income it is phased out.
Awesome video! Important question for you. I found that when doing cost seg, it splits out Land Improvements vs Furnishing. It also looks like Land Improvements cannot fall under section 179. So the tax code first applies depreciation on 179 and then it looks at special depreciation. However special depreciation does not seem to carry forward. Is all of the above accurate?
Great question. But is it possible to 1031 the str upon sale and keep kicking that can down the road with future 1031s? Thus, washing away away the sins of recapture and cap gains, indefinitely.
If it is a short term rental 7 day customer and you don’t meet 100 hours, can you at least qualify in the $25,000 passive losses subject to income threshold?
Thank you for this video! I have several STRs. I own one of these properties that STR but also have several STR properties that I lease which is set up as it's own LLC. I like leasing properties because the low start up cost but of coarse I don't get the depreciation benefit from owning these units. I also have one SFH that is a long term rental. I have been working this business as a side hustle besides my W2 income. However, I plan to become full time self employed very soon with the majority of my personal income to support my family coming from my STR business. I also plan to set up other streams of income as well, with a combination of some passive and active. Should I set myself up as an employer of a C-corp managing these businesses to maximize overall benefits? I will need to also fund my own health insurance, etc as well so I was thinking since health insurance can be paid by my C-Corp and written off it would be best. Thank you!
Thanks for this video. My question is can you accelerate depreciation from a property that you own but with a mortgage; for the purpose of Airbnb? I am launching my first Airbnb this month!
This can be confusing for many people. If the income is active because you are providing substantial services to your guests then the answer it most likely yes. If all you are looking at is material participation with an average rental of seven das or less then the answer is no.
@@ClintCoons Toby mentions in his "How is Airbnb Taxed for Hosts?" video that material participation does not matter if the average is 7 days or less. It would still not be considered passive rental income.
@@Ernestjm2 Can you send me a link to the video where he states this. He may have misspoken. If the average rental period is 7 days or less and you materially participate the income/loss is non-passive.
Just setting up an STR about 500 miles from me. I am sure that this first year I will easily have 100 hours of hands on (especially if it includes driving) even if it’s professionally managed. Can I do both? Heck, I think I’ve met the 100 hours already, furnishing it, repairing it, etc.
Correct, with STR if your average rental is 7 days or less and you spend 100 hours (more than anyone else) you can qualify. REPS is a different test that is applied to long term rentals.
Thanks for the great information. Will be binging on this stuff. Have two STR's and I'm a Home Inspector. Thinking this is gonna qualify me for Real Estate Professional.
Possibly. Remember, STR does not count toward the REPS material participation status. You might be better just qualifying as STR. If you would like a FREE 30-minute consultation, you can request one here - aba.link/30minSession
Clint, thanks a lot. How can this structure be reconciled with the one you presented in another video where you make an MLA with a C-Corp to reduce the 15% employment taxes? Also for asset protection and privacy can you still have these 3 properties under a HoldCo LLC in Wyoming?
Thank you Clint! I appreciate the video. I have a short-term rental property in Mexico that I'm currently building. Will this also apply for property outside the US?
Can you comment on strategies in the following years after you decide not to continue renting as an AIRBNB. Can you convert these properties to a long term rental or hand it off to a property management company if you don't want to keep managing AIRBNBs? Will it affect your ability to qualify for the material participation rule for future properties if you buy another rental year 2 to self manage and give your first rental over to a property management company?
Thanks for the great video! Very informative. A quick question on material participation. If I buy a long term rental out of state does my time traveling to the property to manage it could toward the 100 hours?
Many thanks, CC. I only hope the IRS will accept this. I'm being audited for this very issue right now. Used H&R Block software to do my taxes in 2019, answered all the interview questions (one was about the 7 day average) and got 28k in losses. IRS is coming for me now saying it's a passive activity loss and is limited by my high w2. So, I'm in for a fight.
Any updates on how that went? I would love to find out how the IRS would side on that. This is a gray area where everyone seems to interpret it differently and it's very unclear what will really end up counting or not.
@@orrd Actually, we basically won. I has to point the IRS directly to the rule that makes STRs an exception to passive income. I also sent a memo from their own general counsel noting the exception in a similar case. Their only requirement was that I send them documentation that supported my contention that our property was in fact rented on average for
Great video! What is the requirement if the property is owned by two partners. Does each have to material participate 100 hours on their own to get the bonus depreciation? Or if only one does can they get their portion of the depreciation?
Good video...One of the questions that came to my mind what will be better to depreciate 1 time only or depreciate every year. My CPA advice me doing schedule E on my first year of my Airbnb. He said that I won't be paying Self employment tax because it was considered passive income and in the same time he can use the depreciation on the property but on the other hand I can't deduct my expenses on my other business or in the same Airbnb. Actually my problem is that my Airbnb is giving me positive income and I don't know what will be best for my taxes. Thanks for your videos
Thank you! Our two vacation rental properties are an (exactly) 30-day rental due to coastal/local ordinance, which prohibits anything shorter. Should we look at REPS status or STR? Some of the literature says "30 days or less" (versus "less than 30 days"); if providing significant services. For example, we typically have 10-11, 30-day tenants for the year.
I wish that people would talk more about the drawback of using cost segregation and bonus depreciation to take all that depreciation expense early. The draw back is that you then don't have that expense any more in future years once you've used it up. Or if you instead sell the property, you have to pay back that depreciation as recapture. For probably most situations, it's actually better not to do that cost segregation study. But videos about this make it sound like it's free money with no drawback.
Awesome video. My CPA advised me not to execute this strategy without an LLC though, or I am sure to be audited. I make 150k W2. It is a primary residence 3-unit Apt bldg with 1 unit being STR, managed by myself, and far exceeding 100 hours… Thoughts?
Totally understand - in this scenario, I don’t know how the LLC would own just one of the 3 units in the triplex… Property Is located in Washington D.C. and is under a $2M VA Loan, recently purchased. CPA floated the idea of doing some sort of TIC setup for tax purposes, but the Title Attorney I spoke with didn’t seem to think that could work either. Stuck here honestly - really want to take advantage of this legal strategy to minimize W-2, but even more so do not want to go through audit(s). Big fan of the channel and really appreciate any insights/thoughts. Thanks
@@brianfoster764 This one will not work because for STR purposes the entire building is considered in the calculation. You live in one of the units so this will blow the calculation of average rental of 7 days or less. An aggressive strategy might be to use a TIC whereby the LLC holds the airbnb and you personally own the residence unit. If you go this route be sure that the transfer wont violate the VA loan.
Hey, are you interested in diving deeper into this topic or chatting with an expert? Feel free to schedule a call here: 👉 aba.link/15p
your absolutely correct alot of tax preparers do not have a clue about depreciation its tough finding a good one out there
This is great Clint. Signing up for Titanium. Looking forward to talk with you soon
Thank you.
Exactly what I was looking for. Subscribed!
Thanks Jay.
Thank you for making this video, I now understand it better. Wish we knew about this before, will be contacting you down the road.
Hi Everyone, What are your questions about Short-Term Rentals or Getting Started in Short-Term Rentals?
Hi Clint , if you go own the STR as an LLC and you rent you property out less than 7 days and you satisfy the materially participation test ( do both owners need to satisfy it?) can then both owners take each 50% of the net loss to offset their individual w-2 active income
Hi Clint, I currently master lease 2 properties and started my cleaning company for STR. How do I structure these companies and how can I save on taxes if I do not own them?
Hi Clint, thanks for the great content!
Assuming I am self managing and material participating... Can I include travel time 8hrs(2400 miles) each way and deduct travel expenses if I am going out to do repairs and set up on my str?
It could be if the property does not have sufficient asset basis to roll into.
Thanks for the video, Clint! My partner is a high-income earner, and she purchased a lake property in 2022, which has been used as a short-term rental. A few questions:
1. The rentals is managed by a management company. My partner has spent at least +100hrs/year in the house, doing different type of massive upgrades, maintenance, paintings walls, creating hiking trails in the lot, etc. The house is 2hrs away from her primary residency, so there is a lot of driving involved too. Will this type of activities count toward the +100hrs material participation? I am 100% sure that nobody else involved in the operation of the rental spends more time than her.
2. She uses the house some weekends during the year. Is there a rule about how much time can you spend in the house, to be considered short-term rental?
3. The house was purchased in 2022 and is currently using depreciation in a linear schedule. Is it too late to do a cost segregation and take advantage of the accelerated depreciation schedule?
Thanks!
This is one that would require a tax consult with our tax department.
Excellent content and clear, concise communication. Love to see it!
Glad it was helpful!
Is this structured as llc taxed as c corp? Thanks great insights!
No it is not.
Great Segment, Clint..
Thanks
Awesome video. My CPA advised me not to execute this strategy without an LLC though, or I am sure to be audited. I make 150k W2. It is a primary residence 3-unit Apt bldg with 1 unit being STR, managed by myself, and far exceeding 100 hours… Thoughts?
Who does your CPA work for - you or the IRS. Sounds like it is time for a new CPA.
If I start doing this in December, would it still qualify? How do you proove to the IRS the 100 hours of material participation... any way to do that while having a management company?
Thanks.
You can start anytime but you must be involved in the management of at least one property where you spend 100 hours.
So we are way behind the curve. We have a STR for 3 years. Have put $50,000 fixing, furnishing, upkeep, but have only been doing standard deductions. Is it worth it now to do a cost segregation? Also should we move the home to a LLC? Do we get more deductible income? If so what?
Absolutely. I would lock in the deduction now (100%) while you still can.
If the average stay is less than 7 days and I materially participate, do I report the income and expenses on Schedule C or Schedule E?
Depends on wether you offer concierge type services to your guests. If you do not then E if you do then C.
Hi Clint, have you done that video yet for real estate professionals. I really need to see that
Are there any benefits for an operator of a mid term rental? I rent to travel nurses who have 2-3 month contracts at a time. The properties are furnished and I manage myself.
STR does not apply to midterm rentals. You would need to qualify for REPS status.
Just purchased our first second home and will use it as a STR. Any videos that highlight how to create LLCs or if its worth doing it? Or do we operate it from our personal account?
Lots of videos on this topic. Search for LLC across my channel.
I thought that the 100 hour test was --- 100 hours AND more than any other one person working on the STR? I would think a cleaning person will do more work than an owner who's self-managing.
Do these losses also go against capital gains and dividends?
Yes
Does any of this work if you hire a management company to manage the property?
Great great video, thanks! Is there a limit on the losses you can deduct using this strategy? For example, if my w-2 is 500k, can deduct 500k loss entirely using this method (assuming all the conditions are legally met)? The example in the video seems to indicate it is ok, but I saw some comments mentioned 25000 limit and 150k w-2 income limit, which got me confused. Thx
That has to do with people who are not real estate professionals.
@@ClintCoons thanks for your reply, can you pls clarify? If I meet the short term rental and material participation requirements, can I deduct $500k loss from $500k W2 income?
@@pipitheeehusky1991 yes if you are married or 289 if single. The remaining is carried forward as a NOL.
Great video! I have a question. How should I go about structuring these short-term rentals. Can I put them in a Series LLC? Or should I put it in a separate LLC that is owned by a Wyoming LLC?
Either way works provided the properties you plan to place in a series LLC are located in a state that recognizes the series LLC.
Hello Clint, I went ahead and purchased a property, previous owner was already doing airbnb and has 17 reservations for december, I'm closing the property next week (early december), if I keep their reservations (they are offering to manage them for 15% fee) - would that not help me qualify for the 100 hours? I will be going very often to the property, and all the previous work finding the property already counts as many hours... If I don't take their reservations, I will have to start from scratch... What would you recommend? Thank you!
Bird in the hand is better than 2 in the bush. What stops you from managing the reservations? Also if the seller spends less than 100 hours managing the reservation and you spend 100 hours working on the property then you could qualify.
@@ClintCoons thank you! Yes. I’m going to take and manage those reservations as much as I can! This strategy is going to save close to 100k in taxes this year! Thank you!
If you were to do this, does that mean that you will not create a C-Corp to manage those Airbnb?
Yes. Next week I will post a video discussing when to use a Corporation with this strategy.
Thank you very helpful
Hi Clint, What about some over 30 days and some less than 30 days. Does one actually have to average all the rentals to make sure under 7 days or under 30 days on average? Thanks!
Depends on your strategy. If over 7 but under 30 then you must provide substantial services to the guests. Substantial services includes things such as daily maid service, airport transfers, excursion bookings, arranging catered meals, etc..
Thanks for the great information! Can you use this strategy and a cost segregation study if you treat a part of your primary residence as STR?
Most likely not because section 280(a) limits its applicability.
Can I use this strategy AND also use the 25k deduction for long-term rentals? Or is just one deduction allowed? Thanks Clint!
Yes you can!
Hi @clint, My property is STR but managed by management company. Does that help offsets W2 income? How about if I get real estate license?
Yes that will make it difficult for you to hit the hours. The license won';t have an impact on this. The license would help with REPS status if you are active
CC, can we rent my primary home to my LLC to qualify as a short term rental?
if you are looking to cost seg your house it wont work if you are living there.
Can you use your primary residence as a short term rental and get the benefits?
No the rules are different for a primary residence.
Have a STR, filling married and w2 income above $150k combined. Average 7 days or less stays for guests and pass one of the 7 tests. I keep reading that $150k+ income doesn't qualify. Is that accurate?
No that pertains to passive income loss limitation. If you meet the test as in your comment then your losses are no longer passive.
The property I’m buying has already a maintenance service that cannot opt out. They can also do the listings in Airbnb etc, or I can do that part.
If I create a website and promote it online to get my own tenants. Would that count for the 100 hours?
Yes an make sure you perform more hours than anyone else e.g., maid, other service
Glad I came across this comment section. I was struggling to decide what to do with a good amount of money in the bank doing nothing. I would be happy if you could advise me, as I am ready to go the passive income path
okay Vic, so generally speaking, investing calls for more knowledge. For this reason, it's crucial to have a strong support system (financial advisor) to lead you through, particularly while choosing assets. I work with (REGINA LOUISE COLLARO) a registered wealth manager and investment advisor. For the record, it has been the best experience for my finances. You may have heard of her because of how well-known her services are.
She helped me become financially solid through investment, and now I profit from her passive income strategies on a monthly basis.Therefore, I'll suggest that you choose a reliable investment advisor for yourself..
That’s great , your investment advisor must be really good,I have seen testimonies of people using the help of investment advisors in making them more financial stable. Do you mind sharing more info on this person?
Regina Louise Collaro is based in the United States and can work with anybody irrespective of where they stay. If you would like more information on reaching her, you can conduct a search online.
personally, I'm blessed and realizing I'm not the only one working with Regina Louise Collaro. I will consider myself lucky. I've been able to feed and make a living through her advice and great work. For such a person as Regina, I owe her gratitude, support and endless prayers as it is not easy to gain access to such a competent and reliable adviser. Who isn't just wise but has all it takes to handle an investment and is good at what she does.
Do all three properties need to be short term rental?
No they do not but on the STRs will count.
So for this scenario, you don't have to be declared a real estate professional? You just have to materially participate for 100 hours per year?
Yes and the property must be rented out on average 7 days or less.
hi Clint, Does my airbnb property has to be in the US? We have airbnb property, soon
properties,outside US and I wonder how to file tax on it since the pay out we are getting goes to our US bank account. Thanks
You will report the income in the US if you are a US resident/citizen.
I find I get more tax loss from Schedule E than a Schedule C. I rent my lakeside cabin 3 weeks a year, to 3 families for 2k/ wk. I have a valid RE sales license. Not sure I could find a local tax pro who knows what you know for maximum Sch C advantages.
What about babysitting services (for my grandkids)
Hi Clint
If you have a detached ADU and you use it strictly for STR use , are you subjected to the vacation home rules or can you follow the hotel tax rules ? Secondly if you own your hotel business in a Co LLC , do both owner required to full fill the 100 hours materially participate rule in order to both take 50% off their active income if they have a lost?
We own some long term rental. My spouse is real estate professional and I am W2. If we invest short term rental, what are the tax advantage or disvantage?
That gets a bit more complicated. Best to set up a strategy session with my firm to discuss because you want to use a master lease agreement to keep your STR a LTR on your schedule E.
You wouldn’t need to qualify for a STR since you would meet the other criteria as a Real Estate Professional via your wife. Its one or the other. The STR is just a loop-whole for those who cant meet the REP criteria. Now you just need to do the cost segregation study on your rental to offset your W2 income. Hope that helps.
Awesome video. My CPA advised me not to execute this strategy without an LLC though, or I am sure to be audited. I make 150k W2. Thoughts?
Would this trigger the alternative minimum tax?
You will need to check with your CPA
What if you are not a real estate professional and you live in the house and rent a basement short term for les then 7 days about 4 times and you refinished with over 100 hours invested can you take some of the tax deductions you mentioned against your income. Great video thank you
Does it have to be short term rental? Can the same be done with long term rental properties as long as the hours satisfy the requirements?
No. If you qualify for REP status and you are not renting your properties on a short term basis then you can use the cost seg technique.
I’m having an issue right now! My LLC is in Wyoming and the STR I’m getting is in Phoenix Arizona do I need an LLC for each STR and for my business bank account would I need one for each STR if each one had its own LLC?
If you are purchasing the STR then yes I would set up an AZ LLC member managed by your WY LLC and each AZ LLC should have a bank account.
Your content is truly valuable. I have a similar question. The lender is requiring that the LLC entity members must also be borrowers. Would that mean then that the WY LLC would have to be named as the borrower on the loan documents?
Thank you in advance.
What do you think about hiring a property manager for the STR and being materially active with 500 hours… still considered active income??
That is tough but it might work
@@ClintCoons does the wife’s material participation work too if she’s not on the title?
@@theinvestmentguy9041 I believe so yes however you could deed her an interest in the property but do not record the deed, also if you live in a community property state and you did not take title as your separate property it might be considered owned by her.
Hi Clint. The 7 day rule is monthly?
No it is the average for the year.
Does airbnb go on schedule c or e?
E unless you are providing concierge services.
How can I reduce my taxes on the short-term rental I make if I partner up with someone who owns a unit or if I rent it out from them and Airbnb it?
To reduce your taxes you will need to own the unit then perform a cost seg study to generate losses. Another option if you go the lease route would be to consider using a corporation to lease the property then sublease and take write offs through your corporation.
Hi Clint, great video! Question; when posting all my start up cost such as furniture, pillows, bed lines etc do I categorize them as capital expenditures in QB?
Expenses.
Can I do this as an H1B?
Only passive investing. STR would work provided you do not rise to the level of a hotel e.g. offering the extra services.
Love the video and subscribed to this channel and Toby's. I get that it is great that you can put this on your schedule C and now take these non-passive losses and deduct from your other non-passive income (e.g., W2 income) but are you now liable for self employment tax?
If it hits C yes but I prefer to use E for the income and avoid providing concierge services.
Does this work if the STR is in an LLC?
Yes
What about if you do rental arbitrage?
I have a video on my channel that covers STR arbitrage.
Question: 7 days or less a week? A month? A yea?
Average rental period is seven days or less over the year.
Can i still take the depreciation to offset my W2 if lease a unit out for 3 months and then convert it into a STR within the same year?
The average rental period must be 7 days or less so the answer is yes if the numbers work out.
Hi Clint! Awesome video! I want to clarify this. We have a property that we do both MTR & STR. To get the average rental days: do we just add all the days the property is occupied and divide by number of guests who booked it? Or, let say we have 3 guests who booked 30-90 days and 15 guests who booked less than 7 days- will this second situation be the way to compute for the average rental period?
Thank you again!
Is this still accurate? It is my understanding that you can only deduct up to $25,000 and if you are making $150k or more on w-2 income it is phased out.
Yes if you meet the STR qualificaiton.
Awesome video! Important question for you.
I found that when doing cost seg, it splits out Land Improvements vs Furnishing.
It also looks like Land Improvements cannot fall under section 179. So the tax code first applies depreciation on 179 and then it looks at special depreciation. However special depreciation does not seem to carry forward.
Is all of the above accurate?
Best check with your CPA.
If I am single and have w2 income can I do this? You mentioned spouse doing it.
Yes that is why it is better than REPS
What about Depreciation recapture if you decide to sell? Do you pay it?
Yes you must recapture.
@@ClintCoons thanks for answering
Great question. But is it possible to 1031 the str upon sale and keep kicking that can down the road with future 1031s? Thus, washing away away the sins of recapture and cap gains, indefinitely.
@@bryanyoung9006 Yes you can keep 1031 exchanging the same property to avoid gain recognition.
@Clint Coons: Real Estate Asset Protection
What are these tax laws called? What software can you use to play with the numbers?
I do not know of software to run the numbers.
Any strategy to offer a 30 day furnished lease with option to terminate anytime? 😉
How so?
At 7:58 you say "This is a one time thing." Why can't you do this every year?
You can with new properties but not with the existing property - unless you remodel it.
My wife is a real estate agent. Does she automatically qualify?
Yes provided she also spends 500 hours on your real estate.
Do you ever get so excited that you need to take a shit? That’s what this video has done for me. Thanks for the great info
I cant say that I have but I will say that is one of the funnier comments I have received. 😂😂😂
If it is a short term rental 7 day customer and you don’t meet 100 hours, can you at least qualify in the $25,000 passive losses subject to income threshold?
So If I buy 1 new property a year, can I do this every year?
Yes but the bonus depreciation is phased out over the next 5 years.
@@ClintCoons thank you!
Thank you for this video! I have several STRs. I own one of these properties that STR but also have several STR properties that I lease which is set up as it's own LLC. I like leasing properties because the low start up cost but of coarse I don't get the depreciation benefit from owning these units. I also have one SFH that is a long term rental. I have been working this business as a side hustle besides my W2 income. However, I plan to become full time self employed very soon with the majority of my personal income to support my family coming from my STR business. I also plan to set up other streams of income as well, with a combination of some passive and active. Should I set myself up as an employer of a C-corp managing these businesses to maximize overall benefits? I will need to also fund my own health insurance, etc as well so I was thinking since health insurance can be paid by my C-Corp and written off it would be best. Thank you!
Yes if you are looking for medical benefits and to create w-2 income a Corporation that manages/leases the properties then subleases out is an option.
You mean average rental days is 7 days or less per month?
The average rental period for the entire year is 7 days or less.
Genius!!
Thanks for this video. My question is can you accelerate depreciation from a property that you own but with a mortgage; for the purpose of Airbnb? I am launching my first Airbnb this month!
Yes you can! Best of success with your STR.
Thank you! Question: Do we have to pay FICA on the short-term rental profits now that it’s not passive?
This can be confusing for many people. If the income is active because you are providing substantial services to your guests then the answer it most likely yes. If all you are looking at is material participation with an average rental of seven das or less then the answer is no.
@@ClintCoons Toby mentions in his "How is Airbnb Taxed for Hosts?" video that material participation does not matter if the average is 7 days or less. It would still not be considered passive rental income.
@@Ernestjm2 Can you send me a link to the video where he states this. He may have misspoken. If the average rental period is 7 days or less and you materially participate the income/loss is non-passive.
Great
Just setting up an STR about 500 miles from me. I am sure that this first year I will easily have 100 hours of hands on (especially if it includes driving) even if it’s professionally managed. Can I do both? Heck, I think I’ve met the 100 hours already, furnishing it, repairing it, etc.
What do you mean by "both"?
so you just need 100 hours? not the 750 to be a normal REP?
Correct, with STR if your average rental is 7 days or less and you spend 100 hours (more than anyone else) you can qualify. REPS is a different test that is applied to long term rentals.
Thanks for the great information. Will be binging on this stuff. Have two STR's and I'm a Home Inspector. Thinking this is gonna qualify me for Real Estate Professional.
Possibly. Remember, STR does not count toward the REPS material participation status. You might be better just qualifying as STR. If you would like a FREE 30-minute consultation, you can request one here
- aba.link/30minSession
9:20 “7 days or less” is this per year?
This is your average rental period.
Clint, thanks a lot. How can this structure be reconciled with the one you presented in another video where you make an MLA with a C-Corp to reduce the 15% employment taxes? Also for asset protection and privacy can you still have these 3 properties under a HoldCo LLC in Wyoming?
It depends on wether you qualify as a Real Estate Professional. If you do then you go with MLA if not then you do not use that strategy.
Thank you Clint! I appreciate the video. I have a short-term rental property in Mexico that I'm currently building. Will this also apply for property outside the US?
Not sure
Can you comment on strategies in the following years after you decide not to continue renting as an AIRBNB. Can you convert these properties to a long term rental or hand it off to a property management company if you don't want to keep managing AIRBNBs? Will it affect your ability to qualify for the material participation rule for future properties if you buy another rental year 2 to self manage and give your first rental over to a property management company?
Yes and it is not an issue for tax purposes. You will need to qualify as REPS if you want to deduct your RE losses against your other non RE income.
Thanks for the great video! Very informative. A quick question on material participation. If I buy a long term rental out of state does my time traveling to the property to manage it could toward the 100 hours?
Yes there are cases holding that travel time does count provided it is reasonable.
Many thanks, CC. I only hope the IRS will accept this. I'm being audited for this very issue right now. Used H&R Block software to do my taxes in 2019, answered all the interview questions (one was about the 7 day average) and got 28k in losses. IRS is coming for me now saying it's a passive activity loss and is limited by my high w2. So, I'm in for a fight.
Remember you need to document the 100 hours you spent on your STR.
Any updates on how that went? I would love to find out how the IRS would side on that. This is a gray area where everyone seems to interpret it differently and it's very unclear what will really end up counting or not.
@@orrd Actually, we basically won. I has to point the IRS directly to the rule that makes STRs an exception to passive income. I also sent a memo from their own general counsel noting the exception in a similar case. Their only requirement was that I send them documentation that supported my contention that our property was in fact rented on average for
Very interesting aha moment
Glad you think so!
Great video! What is the requirement if the property is owned by two partners. Does each have to material participate 100 hours on their own to get the bonus depreciation? Or if only one does can they get their portion of the depreciation?
Both if both want it
Good video...One of the questions that came to my mind what will be better to depreciate 1 time only or depreciate every year. My CPA advice me doing schedule E on my first year of my Airbnb. He said that I won't be paying Self employment tax because it was considered passive income and in the same time he can use the depreciation on the property but on the other hand I can't deduct my expenses on my other business or in the same Airbnb. Actually my problem is that my Airbnb is giving me positive income and I don't know what will be best for my taxes.
Thanks for your videos
Juan without knowing your tax situation in depth I cant say one way or another what is your best option.
So much good stuff in one video... As always, really helpful Clint. Thank you!
You are welcome
Thank you! Our two vacation rental properties are an (exactly) 30-day rental due to coastal/local ordinance, which prohibits anything shorter. Should we look at REPS status or STR? Some of the literature says "30 days or less" (versus "less than 30 days"); if providing significant services. For example, we typically have 10-11, 30-day tenants for the year.
Do you have longer term rentals in addition to your STR? Do you currently provide significant services?
I wish that people would talk more about the drawback of using cost segregation and bonus depreciation to take all that depreciation expense early. The draw back is that you then don't have that expense any more in future years once you've used it up. Or if you instead sell the property, you have to pay back that depreciation as recapture. For probably most situations, it's actually better not to do that cost segregation study. But videos about this make it sound like it's free money with no drawback.
Good points. You can always sell via a 1031 and avoid repayment.
Does a 1031 allow you to avoid repayment, or delay repayment?
Disagree if you decide to buy and never sell or simply 1031 until death. Almost slways better to access capital asap rather than wait
@@ClintCoonsisn’t there recapture of the bonus to be repaid at the time of the 1031?
What happens in year two of a short term rental? Can you still depreciate or do another cost segregation study ? Thank you !
what if you materially participate 100 hours but still have the STR mangement outsourced, would it still work?
That makes it more difficult to show material participation.
Awesome video. My CPA advised me not to execute this strategy without an LLC though, or I am sure to be audited. I make 150k W2. It is a primary residence 3-unit Apt bldg with 1 unit being STR, managed by myself, and far exceeding 100 hours… Thoughts?
That is probably good advice because you set up the LLC as a partnership to minimize the audit risk.
Totally understand - in this scenario, I don’t know how the LLC would own just one of the 3 units in the triplex… Property Is located in Washington D.C. and is under a $2M VA Loan, recently purchased. CPA floated the idea of doing some sort of TIC setup for tax purposes, but the Title Attorney I spoke with didn’t seem to think that could work either.
Stuck here honestly - really want to take advantage of this legal strategy to minimize W-2, but even more so do not want to go through audit(s).
Big fan of the channel and really appreciate any insights/thoughts. Thanks
@@brianfoster764 This one will not work because for STR purposes the entire building is considered in the calculation. You live in one of the units so this will blow the calculation of average rental of 7 days or less. An aggressive strategy might be to use a TIC whereby the LLC holds the airbnb and you personally own the residence unit. If you go this route be sure that the transfer wont violate the VA loan.
@Neil Stewart Jeff Cohen of Katz-Cohen… could also use Coons and company, they rock also of course