str to ltr conversion

[James Radford]

hypothetical tax question. I feel like I’m versed on active v passive losses and the tests required to get to the active column, cost seg and bonus, etc. How long would a property need to be an str to gain the active benefits before converting it back to ltr for simplicity sake? Lets say you buy a property in q3/q4, spend your 100 hrs on prep, make it available in q4, get a few stays. You’ve passed all the tests in the calendar year, your cleaners/managers haven’t spent more time than you because the time in the year isn’t physically there. Do your cost seg in q1 the following year and take your bonus on your previous 1040. Then make it an ltr. The motivation here would be if you wanted to buy a property each year but can’t manage all the str actively once your portfolio starts to stack,  the best of both worlds. 

[Ryan Carriere]

@James Radford personally, I would be careful about this strategy of converting a property from an STR to an LTR right away the following year. Think about how the IRS would look at this. I think they could target your intentions, that the whole time your plan was for this to be an LTR, but you just utilized this strategy in the first year to get more tax savings. You should have some good economic reason for converting it.

There is no court case or regulations specifically prohibiting this, nor telling taxpayers they can do this, from my experience, but again, you asking this question and it feeling a little "too good to be true" is usually a sign the IRS may scrutinize something like this, especially if done repeatedly. 

Just be careful, this does come with risk. Ideally, you have it as an STR for longer than one or two quarters if you're going to do this.