Cost Seg Question on Small Multifamily

[Michael Bishop]

Hey everyone,

I am just starting out and I am looking at tris/quads and hoping to get them as 2 BR/ 2 Bath or something along those lines.

If I am able to rent out the other units with a property manager and then house hack the other bedroom in the unit I'm in on my own as a STR/MTR, can I claim any or all bonus depreciation as I am the main one running that part of the "business" while my property manager handles the LTRs in the other units? And to likely answer an initial question, I will likely need a prop manager due to me traveling and being gone a ton in my job currently. I don't want to extra stress of managing it with my current lifestyle. Will likely self-manage in the future from seeing property management done and having more time.

Thank you!

[Michael Plaks]

Quote from @Michael Bishop:

Hey everyone,

I am just starting out and I am looking at tris/quads and hoping to get them as 2 BR/ 2 Bath or something along those lines.

If I am able to rent out the other units with a property manager and then house hack the other bedroom in the unit I'm in on my own as a STR/MTR, can I claim any or all bonus depreciation as I am the main one running that part of the "business" while my property manager handles the LTRs in the other units? And to likely answer an initial question, I will likely need a prop manager due to me traveling and being gone a ton in my job currently. I don't want to extra stress of managing it with my current lifestyle. Will likely self-manage in the future from seeing property management done and having more time.

Thank you!

Your rental units are going to be LTRs, so your ability to claim losses will be restricted by your job income. If it's $150k, you have zero room to claim LTR losses, so cost segregation, bonus depreciation and all these other juicy strategies will not really help you. And you won't be able to qualify for the Real Estate Professional status because it seems like you have a demanding full-time job and are (wisely) single.

Renting half of your own unit as an STR will not help you either. Three reasons:
- you won't meet "material participation" test having outsourced all property management
- you can't claim losses from renting a portion of a single unit
- even if you could claim the benefits, they would be very small for half a unit of a quad

PS. This is the difference between actual understanding of the tax law and watching TikTok.