Bonus Depreciation for STR then LTR?

Question

Hello everyone, hope all are well, I'd appreciate insight on a question- if I take bonus depreciation after a cost segregation study in a year, then do STR and it's just not for me, can I then convert to long term leases the next year and still benefit from the deduction in year one or is that owed back somehow (other than recapture at time of sale) Thanks!

Julio Gonzalez · Answer

@Jon Kim Your property qualifies for cost segregation and bonus depreciation regardless of it's used for short term or long term renting. So no worries if you decide to change your investment strategy!

Yonah Weiss · Answer

@Jon Kim it's a very interesting question if I understand it correctly.

The main concern is that STRs depreciate on a 39 year schedule, and LTRs on a 27.5 year schedule. Whether or not you'll have to change that if there is a change of use, I'm not sure about.

Sean Bramble · Answer

I’m not a CPA so take this as a guess. But I believe depreciation is linked to the property, not how you use it. So it should theoretically carry forward indefinitely until the financial benefit has been used up.

Erik B. · Answer

Account Closed

Would the depreciation schedule have to be changed from 39 years to 27.5 years if changing from STR to LTR the second year of ownership? If so how would this be done? For instance, is there a specific form that has to be filled out to make that depreciation schedule change?

Account Closed · Answer

Yes, if you change your single-family home from Short-Term Rental to Long-Term Rental in the second year of ownership, you would need to adjust the depreciation schedule for tax purposes.

Recall for residential rental properties, the IRS allows a depreciation period of 27.5 years under the Modified Accelerated Cost Recovery System (MACRS). This applies to properties used for the production of income, such as rental properties.

However, if you initially declared your property as an STR (which typically falls under different tax rules), you might have been using a depreciation period of 39 years, which is common for non-residential property or property used for personal purposes.

When you convert your property from STR to LTR, it's considered a change in use for tax purposes, and you would adjust your depreciation schedule accordingly. This means you would switch from the 39-year schedule to the 27.5-year schedule, reflecting the change in the property's use from personal or non-residential to rental.

It's essential to consult with a tax professional or accountant familiar with real estate tax laws to get this right. I would not advice trying to do it on your own. Best of luck!

Account Closed · Answer

Indeed you can do this, as long as your stays are 7 days or less in that year, and you can qualify for the STR rental loophole in that year to get the bonus depreciation against your w2 income

Kevin Barresi · Answer

Joining in to ask about any updates. If the conversion of use doesn’t trigger any depreciation recapture or other negatives, then I could theoretically: buy a home, rent it as an STR for one year, claim all my bonus depreciation to offset W2 income, and then covert it to an LTR year 2. This would fit very well into my long term strategy of growing my LTR portfolio while still providing big tax benefits against my W2 income.

Francois Lafontaine · Answer

Any update on this?

Sush Girish · Answer

@Jon Kim were you able to figure this out?

Jon Kim · Answer

Thanks for the responses everyone, the confusing part to me was if I use the deductions against active income year 1 since STR's are an active business, but then switch to LTR's year 2 which correct me if I'm wrong can't count against active income- if this in some way has a disadvantage with recapture, etc. since the STR business would no longer exist

Bonus Depreciation for STR then LTR?

Most Popular Reply