Spreadsheet calculate for custom STR loophole & cost seg analysis

Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 899 votes

1y

Hey William — this is a great initiative, but I strongly recommend working with a tax professional instead of trying to DIY a spreadsheet for something this nuanced. The STR loophole, cost segregation, and depreciation calculations involve a lot of moving parts and it's easy to either overestimate the benefits or miss compliance issues that could trigger an audit. A good CPA who specializes in real estate can model this accurately, factor in your personal tax profile, and make sure the strategy actually holds up if ever questioned.

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William C.
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Member since 2021 · 87 posts · 41 votes
1y
Quote from @Jason Malabute:

Hey William — this is a great initiative, but I strongly recommend working with a tax professional instead of trying to DIY a spreadsheet for something this nuanced. The STR loophole, cost segregation, and depreciation calculations involve a lot of moving parts and it's easy to either overestimate the benefits or miss compliance issues that could trigger an audit. A good CPA who specializes in real estate can model this accurately, factor in your personal tax profile, and make sure the strategy actually holds up if ever questioned.
I fully agree. Thought with a novice calculator is quick analysis. Much like the calcs available on BP. I have a CPA, and cost seg engineer that I work with. Having them analyze many deals that do not fit, would be an unfair use of their time by me. If a deal passes the initial filters, then of course I would engage the pro's.
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Michael PlaksPro Member

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

1y

Quote from @William C.:

Has anyone built a custom spread calculator with the intent of quickly analyzing deals for STR loophole & cost seg purposes? If yes, can you share? If no, can you help my brainstorm what one could look like?

My thoughts are:

Step 1: Input purchase price. Separate out land value v. structure value. Carrying just the structure value forward.

Step 2: Use an online estimator tool like KBKG to enter the details of the property. This will spit out out a bonus depreciation number. Carry that forward.

Step 3: Optional. If this an ADU property, calculate the square footage of the STR and compare that to the overall square footage of the purchase. Carry a portion forward.

Step 4: Custom part. Estimate taxable income for the year. Using STR loophole (if not REPS) how much would taxable income be reduced by? Estimating combined marginal tax rate (fed & state), get an estimate of overall tax dollars saved.

Output from this could help a person pass on properties that don't hit a personal threshold of benefit, or move forward with the ones that do. I realize this is an oversimplification. What feedback and edits do you have?

Every cost seg company offers free projections that basically do exactly what you describe. No effort required from you at all, they do everything.

And then you set your expectations, go to a tax accountant and receive the shock of your life when you are informed that you get only a small portion of what you expected.

This is because it's not a straightforward deduction but only a potential deduction facing multiple potential limitations and pulling other strings that can swing the bottom line result wildly.

Do ask for those free cost seg projections, but do not count on the end result matching them.

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William C.
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Member since 2021 · 87 posts · 41 votes
1y
Quote from @Michael Plaks:

Quote from @William C.:

Has anyone built a custom spread calculator with the intent of quickly analyzing deals for STR loophole & cost seg purposes? If yes, can you share? If no, can you help my brainstorm what one could look like?
My thoughts are:
Step 1: Input purchase price. Separate out land value v. structure value. Carrying just the structure value forward.
Step 2: Use an online estimator tool like KBKG to enter the details of the property. This will spit out out a bonus depreciation number. Carry that forward.
Step 3: Optional. If this an ADU property, calculate the square footage of the STR and compare that to the overall square footage of the purchase. Carry a portion forward.
Step 4: Custom part. Estimate taxable income for the year. Using STR loophole (if not REPS) how much would taxable income be reduced by? Estimating combined marginal tax rate (fed & state), get an estimate of overall tax dollars saved.
Output from this could help a person pass on properties that don't hit a personal threshold of benefit, or move forward with the ones that do. I realize this is an oversimplification. What feedback and edits do you have?

Every cost seg company offers free projections that basically do exactly what you describe. No effort required from you at all, they do everything.
And then you set your expectations, go a tax accountant and receive the shock of your life when you are informed that you get only a small portion of what you expected.
This is because it's not a straightforward deduction but only a potential deduction facing multiple potential limitations and pulling other strings that can swing the bottom line result wildly.
Do ask for those free cost seg projections, but do not count on the end result matching them
Thank you for the reply. This inspires me to nag the cost seg study providers for more estimates. I tend to avoid that since my closing rate compared to number of deals analyzed is so low.

My thought with building a personal calculator is to address some of the overstated estimates I have received in the past. I attribute that to me not providing enough detail and also the desire to win your business. My thought is a personal calculator would tend to be more accurate.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
1y
Both concerns are valid.

Read this: https://www.biggerpockets.com/forums/51/topics/831924-beware...
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William C.
OP
Member since 2021 · 87 posts · 41 votes
1y
Quote from @Michael Plaks:
Both concerns are valid.

Read this: https://www.biggerpockets.com/forums/51/topics/831924-beware...

Thank you. Good read.
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Markus Shobe

Accountant · Indianapolis, IN · Member since 2019 · 247 posts · 134 votes

1y

I mean you could but I would probably just to to a cost seg company. Most of them offer free projections.

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Basit SiddiqiBusiness Member

Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes

1y

I think the performance of the STR should come first before you look at the tax savings.

What if Property 1 is a 15% cash on cash return + 5% appreciation but the Cost segregation study mentions that only 20% of the property is eligible for bonus depreciation.

Property 2 might allow 30% of the property to be eligible for bonus depreciation but only have a 5% cash on cash return and 5% appreciation.

Yes, property 2 provides a higher tax benefit but property 1 would out perform property 2.

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William C.
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Member since 2021 · 87 posts · 41 votes
1y
Quote from @Basit Siddiqi:

I think the performance of the STR should come first before you look at the tax savings.

What if Property 1 is a 15% cash on cash return + 5% appreciation but the Cost segregation study mentions that only 20% of the property is eligible for bonus depreciation.

Property 2 might allow 30% of the property to be eligible for bonus depreciation but only have a 5% cash on cash return and 5% appreciation.

Yes, property 2 provides a higher tax benefit but property 1 would out perform property 2.

Thanks for taking the time to comment. I agree with your approach. It is what guides us. Tax play is secondary, but still want to be informed on it pre-purchase.
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Aaron ZimmermanBusiness Member

Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes

1y

Totally agree with all the comments on here. A couple factors I see with people wanting to do short term rentals is that it's a true business. Are you ready for that commitment?

Then, when you're figuring out which property to buy, are you looking for a good deal or tax benefits? The tax benefits aren't free either. They do get recaptured or a 1031 exchange upon sale.

None of this is meant to say not to do short term rentals, you should have your eyes wide open when you purchase and know what's involved. I do feel that a calculator like this could be easily developed but to@Michael Plaks point, the cost seg companies could do this for you, although I do believe you need to let them know of the buildings depreciable basis.

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William C.
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Member since 2021 · 87 posts · 41 votes
1y
Quote from @Aaron Zimmerman:

Totally agree with all the comments on here. A couple factors I see with people wanting to do short term rentals is that it's a true business. Are you ready for that commitment?

Then, when you're figuring out which property to buy, are you looking for a good deal or tax benefits? The tax benefits aren't free either. They do get recaptured or a 1031 exchange upon sale.

None of this is meant to say not to do short term rentals, you should have your eyes wide open when you purchase and know what's involved. I do feel that a calculator like this could be easily developed but to@Michael Plaks point, the cost seg companies could do this for you, although I do believe you need to let them know of the buildings depreciable basis.

Thanks. That's enough votes for me. I will nix my calculator plans and lean on the cost seg companies until they get tired of me.
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Stephen Nelson

Accountant , CPA, MBA in Finance, MS in Taxation · Redmond, WA · Member since 2025 · 172 posts · 135 votes

1y

We did one of these at our blog using Javascript. I don't think I can post a link. But you can pretty easily find.

FYI for other bloggers, ChatGPT is a powerful tool to do this kind of stuff.

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William C.
OP
Member since 2021 · 87 posts · 41 votes
1y
Quote from @Stephen Nelson:

We did one of these at our blog using Javascript. I don't think I can post a link. But you can pretty easily find.

FYI for other bloggers, ChatGPT is a powerful tool to do this kind of stuff.

Thanks for the reply. I will test the ChatGPT route. Did not think of that.
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Rohullah Sharifi

Dr · VA · Member since 2025 · 154 posts · 34 votes

1y

for qualifying Cost Seg, it needs to come from a accredited and certify source. otherwise, anyone could start to do Cost Seg.

1. consider pros & cons before deciding for Cost Seg

2. Cost seg study consider overall, divides used material that qualifies for 5, 7 & 15 years depreciate and use.

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Michael Murphy

Investor · Buffalo · Member since 2025 · 45 posts · 27 votes

1y

I'm not a CPA, but I don't see why you can't put a basic model together for deal screening.

If you can get the cost seg company to provide projections for every deal you look at that would be ideal. However, I have to think they will push back at a certain point. Are they really going to model 100 deals before you close on anything?

When I looked into cost seg studies in my area I was able to ascertain that a lot of them use an average for the area (i.e. X% of a purchase price goes to the 5-year life, Y% to the 7-Year life, Z% to the 15-Year life etc.). If you are working with a cost seg company you could probably get some percentages to use as an assumption for the specific type of property in your area. Ideally, you could get a range. In my area (South Buffalo) the short-lived assets are about 20% of purchase price +/- 5% (~100 year old, two family doubles). You could always test your assumptions by giving them a few properties and seeing if the proportion of short-lived assets showed a lot of variance.

You could have an input for taxable income (state and federal) and calculate the savings based on the tax grids. Don't forget that you need to also calculate the reduced depreciation in later years.

Once you have something put together you can get your CPA to evaluate a couple transactions and compare it to what your back of the envelope model has.

Just to be clear, we're talking about a first line screening model. Personally, I would get real numbers from the cost seg company / CPA when you are about to make an offer.

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Spreadsheet calculate for custom STR loophole & cost seg analysis

Spreadsheet calculate for custom STR loophole & cost seg analysis

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