Remote STR Cost Seg + Bonus depreciation for W2 tax offset
NC · Member since 2020 · 24 posts · 7 votes
Remote STR Cost Seg + Bonus depreciation for W2 tax offset
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Rental Property Investor · Bridgewater, NJ · Member since 2022 · 42 posts · 12 votes
3y@Pratap Singh I'm also trying to figure this out right now. I purchased my first STR at the end of 2022 and got it up and running and starting managing bookings and guests in November. I kept a very diligent log of all the time I spent setting up the house itself, all my systems and processes and all my guest and cleaner communication. I came up with 140 hours at least in 2022.
Spoke to my CPA about the STR tax loophole and first he told me i have to make LESS than $125k in order to claim losses against my W2 income. Then I sent him the specific ruling on the STR loophole with the 7 tests mentioned by Ian and he then said that in order for me to pass the 100 hour test, I have to have worked less than 100 hours in my W2 which obviously would never pass. On top of that he said that in order to pass the second test that Ian laid out above, you have to have spend at least 50% of your time managing the STR (50% is calculated from the total W2 hours you work + the hours you spent managing your STR) My example would be 1,700 hours on my W2 + 140 hours on my STR) Based on that OF COURSE I would fail the 100 hours test every time.
So he told me the only way I can take advantage of the STR tax loophole is if I have 10+ properties + REP status or I was retired. Is he right? Or am I talking to the wrong guy?
9 Replies
- 4yJulio GonzalezPro MemberSpecialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
@Pratap Singh
As long as you do not have REP status AND you materially participate in the real estate business, you can deduct up to $25,000 in passive losses against your W2 income. The deduction does phase out based on your MAGI - 50% if your MAGI is greater than $100,000 and 0% above $150,000. Your remaining losses are then carried forward. If you do not materially participate, then your passive losses could only offset passive income. Cost Segregation can definitely be beneficial in this scenario. My team has helped multiple clients through this situation, so if you have any questions, I'm more than happy to help! - Investor · VA AZ, SC · Member since 2017 · 173 posts · 172 votes4y
Quote from @Julio Gonzalez:
@Pratap Singh
As long as you do not have REP status AND you materially participate in the real estate business, you can deduct up to $25,000 in passive losses against your W2 income. The deduction does phase out based on your MAGI - 50% if your MAGI is greater than $100,000 and 0% above $150,000. Your remaining losses are then carried forward. If you do not materially participate, then your passive losses could only offset passive income. Cost Segregation can definitely be beneficial in this scenario. My team has helped multiple clients through this situation, so if you have any questions, I'm more than happy to help!I think the question from the OP is to validate that they are actively managing the rental so they can take the losses against their other W2 income.
My understanding is this: If the OP is a joint filer then one person in the household should not have a W2. If both filers have W2s then even with great record keeping, you will have a difficult time with the IRS convincing them that you are meeting the materially participating bar. Disclaimer - I am not an expert, but just sharing what my research has turned up. - Investor · VA AZ, SC · Member since 2017 · 173 posts · 172 votes4yPratap,
Quote from @Pratap Singh:
Can remote STR help us to qualify STR tax benefit. STR in Florida and owner lives in VA. Managing remotely from VA after initial 2 weeks of onsite hours in furnishing property (~80 hrs) after closing in june.
And 20+ hours in remote remote co-ordinating bookings, cleaning by cleaner, answering guest etc. Except cleaner no other help as its new construction so no maintenance expected
You want to be able to claim your STR as an active business and not a passive investment. This way you can claim a loss against your ordinary income (loss). There are a couple of tests that you need to meet in order to claim this which I think you are on the right track:
1) Average rental duration must be less than 7 days
2) Then either: You managed everything yourself, or you materially participated in the business with 100+ hours and no one else spent more time than you, or you spent over 500 hours managing the property.
Disclaimer - I am an investor/property manager like you from VA and not a CPA/Tax Lawyer - Rental Property Investor · Bridgewater, NJ · Member since 2022 · 42 posts · 12 votes3y
@Pratap Singh I'm also trying to figure this out right now. I purchased my first STR at the end of 2022 and got it up and running and starting managing bookings and guests in November. I kept a very diligent log of all the time I spent setting up the house itself, all my systems and processes and all my guest and cleaner communication. I came up with 140 hours at least in 2022.
Spoke to my CPA about the STR tax loophole and first he told me i have to make LESS than $125k in order to claim losses against my W2 income. Then I sent him the specific ruling on the STR loophole with the 7 tests mentioned by Ian and he then said that in order for me to pass the 100 hour test, I have to have worked less than 100 hours in my W2 which obviously would never pass. On top of that he said that in order to pass the second test that Ian laid out above, you have to have spend at least 50% of your time managing the STR (50% is calculated from the total W2 hours you work + the hours you spent managing your STR) My example would be 1,700 hours on my W2 + 140 hours on my STR) Based on that OF COURSE I would fail the 100 hours test every time.
So he told me the only way I can take advantage of the STR tax loophole is if I have 10+ properties + REP status or I was retired. Is he right? Or am I talking to the wrong guy?
- 3yLinda WeygantPro MemberInvestor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
Quote from @Anna Antipkina:
@Pratap Singh I'm also trying to figure this out right now. I purchased my first STR at the end of 2022 and got it up and running and starting managing bookings and guests in November. I kept a very diligent log of all the time I spent setting up the house itself, all my systems and processes and all my guest and cleaner communication. I came up with 140 hours at least in 2022.
Spoke to my CPA about the STR tax loophole and first he told me i have to make LESS than $125k in order to claim losses against my W2 income. Then I sent him the specific ruling on the STR loophole with the 7 tests mentioned by Ian and he then said that in order for me to pass the 100 hour test, I have to have worked less than 100 hours in my W2 which obviously would never pass. On top of that he said that in order to pass the second test that Ian laid out above, you have to have spend at least 50% of your time managing the STR (50% is calculated from the total W2 hours you work + the hours you spent managing your STR) My example would be 1,700 hours on my W2 + 140 hours on my STR) Based on that OF COURSE I would fail the 100 hours test every time.
So he told me the only way I can take advantage of the STR tax loophole is if I have 10+ properties + REP status or I was retired. Is he right? Or am I talking to the wrong guy?
Ouch. I think you should consider getting with a CPA that has specific real estate experience. There are several of us here on BP. Research a few and see if you can schedule a consultation with them.
Best of luck! - Investor · VA AZ, SC · Member since 2017 · 173 posts · 172 votes3y
I have agreed. That does not seem right
- 3yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
Quote from @Anna Antipkina:
@Pratap Singh I'm also trying to figure this out right now. I purchased my first STR at the end of 2022 and got it up and running and starting managing bookings and guests in November. I kept a very diligent log of all the time I spent setting up the house itself, all my systems and processes and all my guest and cleaner communication. I came up with 140 hours at least in 2022.
Spoke to my CPA about the STR tax loophole and first he told me i have to make LESS than $125k in order to claim losses against my W2 income. Then I sent him the specific ruling on the STR loophole with the 7 tests mentioned by Ian and he then said that in order for me to pass the 100 hour test, I have to have worked less than 100 hours in my W2 which obviously would never pass. On top of that he said that in order to pass the second test that Ian laid out above, you have to have spend at least 50% of your time managing the STR (50% is calculated from the total W2 hours you work + the hours you spent managing your STR) My example would be 1,700 hours on my W2 + 140 hours on my STR) Based on that OF COURSE I would fail the 100 hours test every time.
So he told me the only way I can take advantage of the STR tax loophole is if I have 10+ properties + REP status or I was retired. Is he right? Or am I talking to the wrong guy?
It sounds like he is familiar with Real Estate Professional Status(REPS) but not on whether a rental can be considered an active business(instead of passive).
Best of luck to you on your new search.
Basit Siddiqi CPA4.979 Reviews - Rental Property Investor · Bridgewater, NJ · Member since 2022 · 42 posts · 12 votes3y
Thank you all for the sanity check! I contacted a CPA that someone in this forum recommended who's local to me and versed in RE investing. Had to have an unpleasant back and forth on tax regulations with my OG CPA. Felt new to know more on certain tax codes than someone who's been filing taxes for decades. He fought me hard on the content I shared with him, but when he looked it up himself he told me I was right in the end. I told him I appreciate everything he's done for me thus far, but I need to work with someone who practices RE investing tax strategies often. We parted ways cordially.
- Member since 2023 · 1 post · 1 vote3y
@Anna Antipkina - Just joined bigger pockets. I'm also in NJ and same boat looking for RE CPA, who is an investor and knows how to save W2/1099 taxes, for consultation/strategy with my situation. I'm looking for a first STR and have few questions before I jump in with purchasing a property. Can you please dm me and share your contact.
Also, to entire BP - Wow.. what a community you have. I wish I had known this 2-3 years before. Never the less I'm starting to know now. Thank you all for your efforts. Such a wealth of information you bring in. Even before starting a lot of your forums have answered many of my questions and feel like my ramp up is cut short. Please, dm me of any reference.
Best Regards.
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