CPA specializing in short term rentals?

Question

Hi everyone,

My wife and I have shifted our business to acquiring short term rentals over the past few years. We have always used a traditional CPA but with 8 short term rentals and 3 long term traditional rentals we are looking for a CPA with experience with STRs and RE investors in general to better align with our current tax situation and our future goals.

We live in Irvine CA and ideally we would love someone local but are also open to working with someone remotely. The bulk of our properties are in TN. I have tried a few local CPAs in this area but all have been unable to take on new clients.

I was wondering if anyone has any recommendations of a good CPA that have used that does have some background in STRs?

Thanks so much in advance.

David Rutledge

Jim Kennedy · Answer

Hi David,

Theres a number of CPA's on BP of which I'm aware, but you need to find one that is experienced, as you stated, but almost more importantly  can teach you what you want to know and also what you need to know.

STR's and VBRO's have become a thing over the past few years. The IRS likes them because they can ding you for Social Security taxes on the bottom line, and states like them because they drive income tax and sales tax. I note your properties are in TN an income tax free state, so boo hoo for the TN Department of Revenue. There's ways around paying in Social Security. If you have a loss, then there's none due. If you have a day jobs those wages count as you approach the currently $142K FICA max.

Schedule C Requirements for Airbnb and VRBO Hosts Generally, you will file Schedule C for your short-term vacation rental if: The average guest rents the property for fewer than 7 days, OR the average guest stay is fewer than 30 days AND you provide guests with “substantial services”

Schedule E Requirements for Airbnb and VRBO Hosts

Generally, you will file Schedule E for your short-term vacation rental if:

• The average guest rents the property for more than 7 days and you don’t provide “substantial services”, or
• The average guest stay is longer than 30 days

What are substantial services in short-term rentals anyway?

I’m glad you asked. Substantial services are part of the way the IRS determines whether your management of the property was passive or active. Substantial services include things like housekeeping while the unit is occupied, meals and entertainment, concierge services, linen service, etc.

If guests provide their own linens and you only clean the unit between guests, you are considered a passive owner for tax purposes. Further, maintenance on the property is not considered a substantial service, nor does it qualify you as actively working in the business (even if you’re doing the maintenance yourself).

One more thing: losses. If you have long term rentals, your deductible rental losses are capped at $25K annually, and as your AGI progresses from $10K to $150K your allowable current year loss drops to zero, and is suspended until other stuff happens (different topic for another day) Meanwhile, if you have a loss on Schedule C, you can typically deduct it ALL...offset W-2 wage income, and other types of income too. AT least in the first year, the way to do that is to accelerate the depreciation. I have posted several times over the past five years on this topic in details so if you search you kind find a lot of education, information and tips

Hope that helps. Happy investing!

Jim Kennedy

David Rutledge · Answer

Thanks so much guys. I appreciate the insights. Excuse my ignorance but is there a resource on the site where I can access a list of CPAs?

Thanks so much again.

David

Daniel Hyman · Answer

Reach out to the BP CPA's and see who is still taking on new clients. As Jim mentioned, experience is key here and more critical than geographic closeness.

There are some creative strategies revolving around STR and tax planning, so be sure to ask prospective CPA's about that. Of course they will need to dive into your specifics to offer constructive advice. But the clock is ticking on strategies for 2021. Once 1/1 rolls around, we are all laser focused on tax compliance.

The time for tax planning is now before the end of the year.