Short Term Rental Loophole and Alternative Minimum Tax Impact

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Short Term Rental Loophole and Alternative Minimum Tax Impact

Austin WhitePro Member
Investor · Houston, TX · Member since 2015 · 17 posts · 7 votes

Community - My wife and I are high-income earners, each with salaries greater than $150,000 per year. We file separately for a student loan strategy. We purchased, renovated, and placed our first short term rental in service at the end of 2022. We were able to bonus depreciate $40,000 through a cost segregation study which I planned to use to offset some of my tax federal taxes of $40,000. When it came time for filing, my CPA told me that I would not be able to use the bonus depreciation because of the Alternative Minimum Tax (AMT). All I've heard is how beneficial this loophole is for high W-2 earners but how is that the case with the AMT impact? The examples I regularly hear are for physicians, tech workers, etc. who certainly make well more than what we make so how are those individuals not impacted by the AMT? I haven't heard it discussed on any podcasts or forums. Any help or guidance would be greatly appreciated. Thanks in advance!

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Melissa Nash
Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
2y

Bonus depreciation is just that... a bonus! and is going away soon anyhow.  So don't focus on that- if you get it great- if not.... there is SOOOO much more that you are gaining to focus on. 

#1. Use the STR "loophole" (tax benefit) and make sure you are managing more than your PM (if you hire one) or self manage it, its very easy. You can take all your deductions as an active investor. I have a PDF that my CPA gave me, happy to forward it to make sure you can take advantage of this tax benefit, message me. (I am NOT a CPA, but I pay a lot of $$ for one)

#2. Use the Cost seg.... I do this each year on at least 1 property. One of my luxury STR properties got me a $330k deduction. yes, you read that right! I paid ZERO fed taxes bc of cost segregation while making a higher income.

#3. If you are buying and STR- most are in good areas that appreciate...grow your wealth baby and let the guests pay your mortgage down! 

#4. cashflow---- who doesn't want more money??

#5. Hedging inflation- you are literally locking in a rate at todays dollar that is inflating faster than ever before. Borrowing $$$ is how you get rich!!!

#6. You can use and enjoy the property ANY time you want!! I mean- can you say sipping Champaign from your new cabin deck or hot tub?? 

These are the reasons WHY I invest in STR's -- Best of luck! Melissa

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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Is there a reason you don't believe your CPA? Have you checked with another CPA or tax attorney to see what they say?

    0Reply
  • Austin WhitePro Member
    OP
    Investor · Houston, TX · Member since 2015 · 17 posts · 7 votes
    3y

    @Michael Baum yes, there is reason to not believe her because she doesn't have much experience with handling short term rentals. I am in the process of reaching out to other tax advisors now but wanted to get the feedback from the community as well. 

    1Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    The explanation doesn't make sense to me.

    You should have ran your scenario by your CPA first before implementing it and seeing how that would have impacted your return. See what her response would have been then.
    You likely already paid for her service which may have to be redone.

    [email protected]917-280-8544
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    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    3y

    @Austin White I don't know about bonus depreciation but some loses you can't use now but they do Carey forward. You can use them when your income is lower when you are not in an AMT year. Consult another CPA because you want to make sure any carry forward is done correctly.

    0Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    3y

    Definitely talk with another CPA that knows STR! It's possible to do and we're helping a client set up a STR before the end of the year for tax purposes. Toby Mathis YouTube channel has tons of info/education and can help you know what questions to ask a CPA.

    [email protected]330-557-3021
    0Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    I would look to replace your current CPA. It's clear they don't know enough in this complex area. That being said, you're going to have a hard time finding another CPA that can file your return timely. 

    [email protected]
    Brick House CPAs53 Reviews
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    0Reply
  • Nate MeekerBusiness Member
    Real Estate CPA | California · Member since 2020 · 544 posts · 251 votes
    2y
    Quote from @Austin White:

    Community - My wife and I are high-income earners, each with salaries greater than $150,000 per year. We file separately for a student loan strategy. We purchased, renovated, and placed our first short term rental in service at the end of 2022. We were able to bonus depreciate $40,000 through a cost segregation study which I planned to use to offset some of my tax federal taxes of $40,000. When it came time for filing, my CPA told me that I would not be able to use the bonus depreciation because of the Alternative Minimum Tax (AMT). All I've heard is how beneficial this loophole is for high W-2 earners but how is that the case with the AMT impact? The examples I regularly hear are for physicians, tech workers, etc. who certainly make well more than what we make so how are those individuals not impacted by the AMT? I haven't heard it discussed on any podcasts or forums. Any help or guidance would be greatly appreciated. Thanks in advance!

    Get a new CPA or at least a second opinion haha!

    Qualified property eligible for bonus depreciation is exempt from adjustments to depreciation that otherwise might apply to depreciable property in determining alternative minimum taxable income (AMTI). The qualified property exemption applies to both bonus depreciation (as indicated below) and any other allowable depreciation (e.g., where bonus depreciation is less than 100%). And the qualified property exemption applies even if the you elect to decline bonus depreciation, to claim the special form of bonus depreciation available for specified plants, or
    elected (for the first tax year ending after Sept. 27, 2017) to claim 50% instead of 100% bonus depreciation.

    _____________________________

    Any post made by The CPA Realtor - Nate Meeker is informational only and does not create a client relationship. Readers are advised to engage a licensed professional who knows their situation before relying on their opinion.

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

    @Austin White 

    Do you have a CPA that specializes in real estate taxation? Real estate has so many tax benefits and credits available, that I always tell people it's crucial to have a CPA that's extremely knowledgeable in this area. This would be an excellent question for them. I have worked with a number of great CPAs over the years and would be more than happy to provide you with recommendations if you'd like?

    561-253-6640
    1Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    2y

    Bonus depreciation is just that... a bonus! and is going away soon anyhow.  So don't focus on that- if you get it great- if not.... there is SOOOO much more that you are gaining to focus on. 

    #1. Use the STR "loophole" (tax benefit) and make sure you are managing more than your PM (if you hire one) or self manage it, its very easy. You can take all your deductions as an active investor. I have a PDF that my CPA gave me, happy to forward it to make sure you can take advantage of this tax benefit, message me. (I am NOT a CPA, but I pay a lot of $$ for one)

    #2. Use the Cost seg.... I do this each year on at least 1 property. One of my luxury STR properties got me a $330k deduction. yes, you read that right! I paid ZERO fed taxes bc of cost segregation while making a higher income.

    #3. If you are buying and STR- most are in good areas that appreciate...grow your wealth baby and let the guests pay your mortgage down! 

    #4. cashflow---- who doesn't want more money??

    #5. Hedging inflation- you are literally locking in a rate at todays dollar that is inflating faster than ever before. Borrowing $$$ is how you get rich!!!

    #6. You can use and enjoy the property ANY time you want!! I mean- can you say sipping Champaign from your new cabin deck or hot tub?? 

    These are the reasons WHY I invest in STR's -- Best of luck! Melissa

    2Reply
  • Austin WhitePro Member
    OP
    Investor · Houston, TX · Member since 2015 · 17 posts · 7 votes
    2y
    Quote from @Julio Gonzalez:

    @Austin White 

    Do you have a CPA that specializes in real estate taxation? Real estate has so many tax benefits and credits available, that I always tell people it's crucial to have a CPA that's extremely knowledgeable in this area. This would be an excellent question for them. I have worked with a number of great CPAs over the years and would be more than happy to provide you with recommendations if you'd like?

     Thanks @Julio Gonzalez. Just reached out to connect. Would certainly appreciate any recommendations. Thanks

    0Reply
  • Austin WhitePro Member
    OP
    Investor · Houston, TX · Member since 2015 · 17 posts · 7 votes
    2y
    Quote from @Melissa Nash:

    Bonus depreciation is just that... a bonus! and is going away soon anyhow.  So don't focus on that- if you get it great- if not.... there is SOOOO much more that you are gaining to focus on. 

    #1. Use the STR "loophole" (tax benefit) and make sure you are managing more than your PM (if you hire one) or self manage it, its very easy. You can take all your deductions as an active investor. I have a PDF that my CPA gave me, happy to forward it to make sure you can take advantage of this tax benefit, message me. (I am NOT a CPA, but I pay a lot of $$ for one)

    #2. Use the Cost seg.... I do this each year on at least 1 property. One of my luxury STR properties got me a $330k deduction. yes, you read that right! I paid ZERO fed taxes bc of cost segregation while making a higher income.

    #3. If you are buying and STR- most are in good areas that appreciate...grow your wealth baby and let the guests pay your mortgage down! 

    #4. cashflow---- who doesn't want more money??

    #5. Hedging inflation- you are literally locking in a rate at todays dollar that is inflating faster than ever before. Borrowing $$$ is how you get rich!!!

    #6. You can use and enjoy the property ANY time you want!! I mean- can you say sipping Champaign from your new cabin deck or hot tub?? 

    These are the reasons WHY I invest in STR's -- Best of luck! Melissa

    Thanks @Melissa Nash! Yes, I'd love to take a peak at that pdf if you don't mind sharing. I'll reach out to you directly. We have a portfolio of 10 properties so I whole heartedly agree with all your points, but this was the first year filing with STRs on the books so trying to get our ducks in a row! Thanks for the reply. 

    0Reply
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