STR tax loophole

[Angelo Llamas]

Hello im going to be closing on a STR with my brother co-signing. Im curios if the STR tax loophole that allows investors to write off up to 25k of active income assuming we have that much to write off but will it allow both of us to do 25k or a total 25k and will be able to do 12.5k each. Hope that makes sense.

[Michael Plaks]

Your brother co-signing does not automatically make him a co-owner. We would need to review your arrangement before deciding whether the property is 100% yours or 50/50 - both scenarios are possible.

If it's 100% you, you are obviously entitled to the full tax benefit, with some gotchas. If it's 50/50, it gets far more complicated.  The tax benefit will also be split 50/50 however it's very possible that only one of you will be able to utilize your respective half. This is because each of you will need to separately meet the "material participation" test, and it would require both of you being very heavily involved in day-to-day management.

In fact, it's possible that neither of you passes this "material participation" test, and then neither one gets the immediate tax benefit that you expect. By the way, you have the same "material participation" obstacle even if you own the property 100%.

$25k number comes from a completely different tax rule and has nothing to do with STRs. Your number can be lower or higher than this.

Whichever TikToker/YouTuber gave you the impression that STRs come with an automatic $25k tax write-off did not explain (or maybe did not understand) how it really works. Read this:
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...