2023 Short-Term Rental Bonus Depreciation Update

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2023 Short-Term Rental Bonus Depreciation Update

Arda Bircan
Investor · Miami · Member since 2021 · 23 posts · 13 votes

You can still claim 80% bonus depreciation if you are looking to invest in Short-term rental properties this year.  In 2024, it will drop down to 60%.

To maximize your tax savings you will need to purchase a short-term rental property in 2023 and place it into service (rent it) in 2023 and materially participate in the management of that property.

If you can do that and meet one of the 7 material participation test then you can deduct your “losses” against your non-passive income (W-2,1099)

This is an unbelievable opportunity and incentives real estate investment.

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Julio GonzalezPro Member
Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
2y
Quote from @Zach Edelman:

I did not know it was dropping from 80% to 60%. Thanks for posting this!



In the H.R. 3936, Built in America Act, it was proposed to extend the 100% bonus depreciation until January 1, 2027. This has the potential to be passed later this year.
561-253-6640
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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    2y

    Yup. It isn't always a panacea of cashola, so you have to check.

    0Reply
  • Yu Liu
    Investor · Tallahassee · Member since 2019 · 249 posts · 93 votes
    2y

    Agreed! Big incentive!

    0Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    2y

    Helping a client with this as we speak!

    [email protected]330-557-3021
    0Reply
  • Tsai Richard
    Member since 2023 · 2 posts · 1 vote
    2y

    @Arda Bircan or others, do you have any suggestion how to best approximate the estimated tax benefits from the accelerated bonus depreciation without conducting a formal cost seg. study with a firm? I used the KBKG free tool since the STR property I am contemplating is around $450k and also checked the most recent land value assessed by the county ($60k or 20% of the total assessed value). It doesn't seem like it's a straightforward of 80% bonus depreciation x structure/home improvement value (non-land value), but only 20-30% of the non-land value would be used for the accelerated bonus depreciation?

    At the end of the day, I think it's to compare the standard depreciation schedule Vs. accelerated depreciation schedule that includes the remaining standard depreciation. 

    1Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    2y

    @Tsai Richard, there are many components in a house and they are depreciated at different rates.  There are some parts that are 5 year components and some that take the full measure of time.  The idea is to break the property up into those components and accelerate the timeline, so you get more up front.  Vinyl or carpet is a shorter time than tile, as an example.  I used DIY Cost Seg for my report. 

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  • Tsai Richard
    Member since 2023 · 2 posts · 1 vote
    2y

    Thanks @Kerry Baird Yea, that was what I was trying to get at when I was looking at this automated DIY Cost Seg report (screen shot of parts below) where it was split into 5 parts. I guess it was misleading in the beginning for me when I thought I can deduct 80% of the non-land value entirely in first year, but it looks like from the report below it isn't. 

    Fascinated that different flooring materials has different depreciating life span! (of course, tile is probably more durable class material in your example)

    Which DIY Cost Seg tool did you use, if any was used? 

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  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    2y

    Completely agree. Here's an article with FAQs on cost segregation for those looking to learn more about cost segregation studies.

    https://www.biggerpockets.com/forums/51/topics/1113749-cost-...

    561-253-6640
    0Reply
  • Zach Edelman
    Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
    2y

    I did not know it was dropping from 80% to 60%. Thanks for posting this!

    0Reply
  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    2y
    Quote from @Zach Edelman:

    I did not know it was dropping from 80% to 60%. Thanks for posting this!



    In the H.R. 3936, Built in America Act, it was proposed to extend the 100% bonus depreciation until January 1, 2027. This has the potential to be passed later this year.
    561-253-6640
    1Reply
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