Can a second home qualify as a STR that you can bonus depreciate?

Question

I recently found out about the STR rule that allows non-full time real estate professionals to do a cost segregation study and bonus depreciate part of the home’s value and take these losses against their w2. I also found out that you only need 10% down for a second home loan. The specific requirements for these are interesting and I’d like some input from those with experience.

So my understanding is that in order for a STR's losses to be considered active (and therefore deductible against a W2), among other requirements, the owner must use that property for 14 days or less (let's assume <140 days total rented for simplicity). And for a second home, the owner must use that home for at least 14 days in order for it to not be a rental property. Is my understanding correct that if one was to purchase a second home that they put as a short term rental, they would have to use it for exactly 14 days for it to count as both a STR and as a second home? How strict is the IRS with these numbers? Thanks.

Ryan Moyer · Answer

I'm not a CPA nor can I offer any advice here, but out of curiosity how would the IRS know what type of loan you have on your mortgage, and why would they care?

Michael Baum · Answer

Hey @Armen Ter Avetisyan, you need the place to be listed as up as a STR.

Remember this is the IRS. They take everything seriously.

Colleen F. · Answer

@Armen Ter Avetisyan you could not mortgage it as a second home because if you only use it 14 days and rent it the rest therefor it is an investment property for loan purposes.  If you need to register rentals in your town or state, it is a registered rental property. You would list it as a rental property online to get guests. For taxes you will apportion the expenses based on your personal use which is minimal.  Therefore it is a rental property and if the IRS came after you it does not pass basic scrutiny as a second home but ask a CPA.

John Underwood · Answer

They are only strict when you get audited.

You are really trying to to ride a fine line of burning your candle at both ends. It may be doable, but is it advisable raising more flags to the IRS for them to want to really get to know you?

Leslie Anne Morris · Answer

I would speak with a qualified CPA. I use learnlikeacpa.com

Bonnie Griffin Kaake · Answer

@Armen Ter Avetisyan  You are not alone in asking these questions. Many CPAs/tax professionals are still struggling with the same questions. There are situations, depending on your tax rate, where you can take up to $25K in losses against your W2, even if you don't materially participate or have to be a RE professional.

And, as long as you are using the STR for personal use 14 days or less per year, you can still use cost segregation to lower your taxes and increase your cash-flow.

STR tax issues are complex and you will want a very qualified cost seg company working with your CPA/tax professional to maximize your benefits. FYI, I just finished doing a 1-hour Continuing Education Class (CPE) last week on STRs to 253 CPAs.

Can a second home qualify as a STR that you can bonus depreciate?

Most Popular Reply