STR tax benefits for small business owner

Investor · Member since 2022 · 186 posts · 155 votes

3y

Hello,

I wanted to try to fully understand what the tax benefits are for someone who is looking to get into STR investing and trying to navigate tax benefits.

Basically my family has a small business that I am part owner in as I split with my brother and father. Currently we have a CPA who handles all of our business taxes and also handles all of our personal family taxes. I work pretty much 9-5 but my taxes are filed as 1040 self employed and every quarter I have to pay estimated taxes to both my state and the IRS.

Once I decide to get my first STR I am highly considering finding a separate CPA that specializes in the short term rental taxes. I am hoping I can potentially find someone on here. I live in CT but don't believe I need a cpa that lives in my state and they can be from anywhere, would that be correct?

I really wanted to see if anybody could try to explain in laymen’s terms what my tax benefits would be outside of depreciation and mortgage interests. Most people I have been reading up on are W2 employees so their benefits may be way different than mine since none of my taxes are being deducted from my paycheck and I’m just paying estimated taxes. Can I somehow intertwine and mix my taxes much easier since I’m self employed?

Thanks in advance!

Hi Brian, you can work with CPAs and cost segregation firm that are remote. Usually CPA firms would recommend cost seg providers to you if they see fit. Not all properties are going to create tax and cash flow benefits with cost seg — the property’s value and your income categories (passive vs non passive) play a role.

I’ve been working with Brandon Hall. He and his firm specializes in real estate and has a good reputation. You can also search in BP directory and google for other options.

Hope it helps!

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Todd Goedeke

Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes

3y

@Brian Davis one depreciation advantage of STVR RE is that you can use cost segregation to take immediate bonus depreciation to shelter W2 income without needing to become a professional RE individual. Consult a experience RE tax atty for those details.

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Bonnie Griffin KaakePro Member

Real Estate Consultant · Denver, CO · Member since 2021 · 661 posts · 389 votes

3y

@Brian Davis STRs can be active investments if you can devote 100 hours per year in managing each property and more than any other entity. Making them active means that you can reduce the amount of taxes you pay on other income. If they are passive, meaning you cannot manage them yourself, then the benefits of cost segregation can be applied to the income you receive from the rental and thereby reduce your taxes owed on that property.

There are some very specific regulations that apply to STRs and most CPAs/tax professionals are doing the depreciation schedules incorrectly at this point. I have written a paper for the Colorado Society of CPAs that they have published for their members. Let me know if you would like a copy.

[email protected]303-475-4459

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Brian Davis

OP

New to Real Estate · Member since 2023 · 9 posts · 9 votes

3y

Quote from @Bonnie Griffin Kaake:

@Brian Davis STRs can be active investments if you can devote 100 hours per year in managing each property and more than any other entity. Making them active means that you can reduce the amount of taxes you pay on other income. If they are passive, meaning you cannot manage them yourself, then the benefits of cost segregation can be applied to the income you receive from the rental and thereby reduce your taxes owed on that property.

There are some very specific regulations that apply to STRs and most CPAs/tax professionals are doing the depreciation schedules incorrectly at this point. I have written a paper for the Colorado Society of CPAs that they have published for their members. Let me know if you would like a copy.

Thank you Bonnie, yes I would like to learn more about this cost segregation and being able to count something towards my regular w2. Unfortunately, I really don't have an understanding of how this can work at the moment.

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Ryan ThomsonBusiness Member

Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes

3y

I would also look into Qualified Business Income Deduction (QBID). The first 20% I make in my rentals is tax free. I would think a CPA who specializes in these things would be the best person to explain the tax benefits in laymen terms. I would consider looking for a CPA first instead of the laymen explanation first.

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Michael PlaksPro Member

Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes

3y

Quote from @Ryan Thomson:

I would also look into Qualified Business Income Deduction (QBID). The first 20% I make in my rentals is tax free.

One does not need to "look into" QBI. It's not some strategy that you implement, it's an automatically calculated adjustment.

And it's not that first 20% of your rents is tax free. It's 20% of your net income (after all deductions, including depreciation) from rentals that is tax free. That is, if you have net income. Most of the typical long-term rentals generate net losses, and QBI is not applicable then.

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Ryan ThomsonBusiness Member

Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes

3y

@Michael Plaks good word. Thanks for clarifying. @Brian Davis sounds like Michael could help explain more of the tax benefits to you.

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Joseph Neri

Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes

5mo

Brian — biggest one most people miss is the short-term rental loophole. If your average guest stay is under 7 days and you do 100+ hours of work on the property per year, the IRS treats it as active income. That means you can use cost segregation and bonus depreciation to offset your W2 and self-employment income — not just your rental income. That's the real game-changer. Most landlords with long-term rentals can't do this because their losses are passive. STR flips that. Get a CPA who specifically knows STR tax strategy — a regular accountant will miss this completely.

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Jonathan Hersh

Los Angeles, CA · Member since 2026 · 21 posts · 15 votes

5mo

A few things I'd add for your self-employed situation specifically, since that's a slightly different angle than most of the discussion.

The STR loophole works exactly the same for offsetting schedule C / 1099 income as it does for W-2. It's not really about where the income comes from, it's about whether the rental losses are classified as passive or non-passive. If they're nonpassive, they offset active income regardless of the source.

The advice above about finding an STR specialist CPA is the right move. Generalists either miss this entirely or try to run the same rental math they use for long-term stuff, which doesn't work.

Also for material participation: spouse hours count! So if you handle bookings and pricing, they handle turnover coordination, your combined hours both count. Makes hitting 100 a lot less stressful.

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Jason MalabuteBusiness Member

Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes

5mo

QBI is not a special tax strategy you elect into. It is an automatic deduction if you have qualified business income.

For rentals, the deduction is generally 20% of your net rental income after expenses and depreciation, not 20% of your gross rents. If your rentals show a net loss, which is common for many long-term rentals after depreciation, there is no current QBI deduction.

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STR tax benefits for small business owner

STR tax benefits for small business owner

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