Short term rental

[Mike Stevens]

Hello

Does anyone know if the short term rental tax depreciation against w2 income has an income limit?

I know there is 150k income limit for long term rentals. Does this apply to short term rentals?

Regards 

mike 

[Sean O'Keefe]

@Mike Stevens there are limitations, here are a couple (but not exhaustive):
1. At-risk amount (IRS Form 6198)

2. If reporting rental income/expenses through LLC -> Net business losses in excess of the threshold amount are disallowed and carried forward (IRS Form 461)

Also, you'll want to be clear on what qualifies as a short-term rental (avg. 7 days, not more than 30 days, etc.)

Definitely consider working with a CPA to help plan for this / file. Cost seg and significant expenses can create losses that exceed these thresholds.

[Mike Stevens]

Quote from @Sean O'Keefe:

@Mike Stevens there are limitations, here are a couple (but not exhaustive):
1. At-risk amount (IRS Form 6198)

2. If reporting rental income/expenses through LLC -> Net business losses in excess of the threshold amount are disallowed and carried forward (IRS Form 461)

Also, you'll want to be clear on what qualifies as a short-term rental (avg. 7 days, not more than 30 days, etc.)

Definitely consider working with a CPA to help plan for this / file. Cost seg and significant expenses can create losses that exceed these thresholds.

 But does the 150k income limit apply?

[Ashish Acharya]

Quote from @Mike Stevens:

Hello

Does anyone know if the short term rental tax depreciation against w2 income has an income limit?

I know there is 150k income limit for long term rentals. Does this apply to short term rentals?

Regards 

mike 

Yes, 461 loss limitation on the dollar amount.  

289k Single
578k Married 

[Sean O'Keefe]

@Mike Stevens the $150k income limit applies if your rental meet the requirements to be classified as long-term. This has to do with the nature of tenants (e.g. how long they stay on average, etc). 

The 461 loss limitation on the dollar amount applies regardless of short-term or long-term as @Ashish Acharya mentioned.

[Mike Stevens]

Thank you. 

Is the 461 loss quote the income limit where it phases out? Or does this represent the max amount that can be written off?

[Sean O'Keefe]

@Mike Stevens No worries, definitely talk to CPA. There are limits and you want to be clear on loss carryforward and how this works if you do hit the limitations. I'm a CPA, but I build tax software for real estate investors (and their CPAs) and don't file or do tax planning consultations. 

[Yu Liu]

Not a CPA but no limit from what I've heard. I have a friend making above $200K a year and he was able to take advantage of the cost segragation study to do accelerated depreciation and wipe out 90% of his taxes. It's one of the main benefits of investing in STRs is the tax advantages

[Chris Picciurro]

There are special rules for STRs that supersede normal passive activity rules. These rules are typically referred to as "Short-Term Rental Loophole". I am happy to share additional information if you DM me. Take care!

[Todd Goedeke]

@Ashish Acharya case scenario: a 7 figure athlete or professional builds( has more than amount of participation hours necessary to qualify for STVR exception) a $500k duplex. Cost segregation allows for $400k depreciation write off( x 80% in 2023) to offset other income.

There is no income limitation in this scenario. Check with a CPA with experience with cost segregation.

[John Malone]

@Todd Goedeke there is the Excess Business Loss limitations but other than that, you could offset all business income and W2 up to the EBL limit

[Michael Plaks]

@Mike Stevens

Your question is not well phrased, so you're getting answers to various related questions and not to the one that I believe you really wanted to ask.

I think you wanted to ask something like this: If I have a high W2 income, let's say $400k - can I offset some of this income with depreciation from STRs? Or is there a certain threshold of income where it's no longer allowed?

The short answer: there is no specific $ limitation on your W2 income, but there're hurdles to clear before you can apply this strategy.

The long answer is probably here: https://www.biggerpockets.com/...

[John Malone]

@Mike Stevens previously discussed in this post

https://www.biggerpockets.com/topics/1056436