Within the law to use the STR loophole on a non-permitted structure

[William C.]

Unique situation. I can provide more info as needed. Proposed strategy is to purchase a property that has both permitted and non-permitted, but livable, structures. Use one of the non-permitted structures as a STR (it's currently successfully being used this way by the owners). Do a cost seg on that non-permitted structure and use the STR loophole to utilize those losses for tax off-setting purposes. Any opinions on tax legality of this?

[Chris Seveney]

Quote from @William C.:

Unique situation. I can provide more info as needed. Proposed strategy is to purchase a property that has both permitted and non-permitted, but livable, structures. Use one of the non-permitted structures as a STR (it's currently successfully being used this way by the owners). Do a cost seg on that non-permitted structure and use the STR loophole to utilize those losses for tax off-setting purposes. Any opinions on tax legality of this?

 Big Red Flag: For a cost segregation study, the asset must be depreciable under the IRS rules, and that typically means it must be a legal, capitalizable structure.

Typically, Non-permitted = Non-depreciable: If a structure wasn’t legally built or doesn’t meet code, it’s questionable whether it qualifies as an asset with a determinable useful life under IRS guidelines.

Also If the unit is illegal to rent (because it's unpermitted), you’re again treading into risky territory. Even if it’s "currently being rented successfully," that doesn’t make it compliant or safe from penalties if caught.

We will not even get into the liability and insurance component, but this is one way to get sued and be sued personally in a way insurance would not cover you.