Questions re cost segregation study for STR

[Nicole Cotrino]

My spouse and I purchased a cabin in November 2023 as a STR and started renting it out in March of this year. I've been hearing a lot about cost segregation studies and have a few questions…

- What are some of the key factors that determine whether a cost segregation study makes sense? (I’m still trying to understand the basics!)

- We are going to start searching for a CPA with a lot of experience in STRs, but haven't found one yet. Would the best first step be to find a good STR CPA or to first focus on finding a good cost segregation firm?

- Will we substantially diminish the benefits of a cost segregation study if we don’t get it done before the end of the year?

- Any recommendations on how to vet CPAs and cost segregation firms? Or, any suggestions on specific companies to use? 

Thank you!

[Paul Wehner]

This post is a great read, I am also looking into this but I keep find contradicting information. I spoke to a tax professional friend of the family and she mentioned if your income is over $150k yearly on your W2 that the this whole STR loophole wont be deduct able against my personal W2. She sent me some information:

"However, if you “actively participate” in the residential rental activity, you may be able to deduct a loss of up to $25,000 in a tax year against nonpassive income. You actively participate in the rental activity if you make important management decisions, such as approving new tenants, deciding on rental terms, approving capital expenditures. You also can show active participation by arranging for others to provide services. You need not have regular, continuous, and substantial involvement with the property. Between $1000,000 and $150,000 of adjusted grow income, the allowance phases out, meaning you can deduct a reduced amount. Over $150,000, the deduction is completely eliminated, unless you qualify as a real estate professional."

I am planning on meeting with a local CPA to discuss so help me understand this better. The main benefit for purchasing a STR would be the tax savings on my W2 after a cost seg. If this is not possible I will stick with a long term rental as my next investment.