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Tax, SDIRAs & Cost Segregation

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Converting Short-term to Long-term after cost segregation study.

Keaton Railsback
Posted Jan 18 2024, 17:52

I’m new to real estate and I’m looking to get started here soon, my only problem is that I’m wanting to have it help with my business taxes. 

My question is: If I buy a couple house in the last couple months of the tax year, just enough time to close and get the cost segregation study done. In that case am I able to say it’s a “short-term” rental if nobody stayed in there and then convert it to “long-term” rental the following year after getting the cost segregation deduction? Or do people actually have to stay 7 days or less?

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Henry Clark
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Henry Clark
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Replied Jan 18 2024, 18:18

Talk with your tax accountant.  Believe you can only take 60% one year depreciation in 2024.  Cost seg would still help to move to earlier lives for portions of the property.  Plus do you have REP status to take year one depreciation?  

Since your last 2023 year end, no need to push the year end did you or didn’t you rent before year end.  

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Sean O'Keefe
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Sean O'Keefe
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Replied Jan 18 2024, 21:35

@Keaton Railsback To be considered by IRS as a short-term rental and get the tax benefits you must meet the following requirements (defined by Treasury Regulation Sec. 1.469-1T(e)(3)(ii)(A))

  • The average period of customer use is 7 days or less
  • The average period of customer use is 30 days or less. (Confusing we know, this means that not only does the customer stay for 7 days or less on avg. they also don't come back multiple times during the year for separate trips and these stays add up to > 30 days -> Trip one: 7 days, Trip two: 7 days, etc.)
  • Personal use of the property cannot be 15 days or more OR more than 10% of the total rental day

You need to "place the property in service" (e.g. ready and available) before you can deduct expenses on the property

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If you "placed the property in service" as an STR, but never had the "intention" of renting it as an STR - the answer is "no".

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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

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