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. 

[Melissa Justice]

@James Radford,

You can maximize first-year tax benefits on a property by doing a short STR stint before converting to long-term rental. Even a late Q4 purchase can qualify: spend 100+ hours actively managing bookings, vendors, and prep to meet material participation requirements. Place the property in service that year, then do your cost segregation and claim bonus depreciation on that year's 1040. You do not need to keep the property STR for an extended period. A few weeks in service during the calendar year can be enough if you meet the active/material participation tests. After that, you can convert to LTR - IRS only cares about activity in the year of deduction. This lets you get the "active" and bonus benefits while keeping long-term management simple.