Feedback on 2025 STR loophole execution

Feedback on 2025 STR loophole execution

Member since 2018 · 5 posts · 3 votes

Hey everyone. Our household makes about $XXK per year. Obviously, we

are paying a lot of tax, but we have never seriously thought about

reducing the tax that we are paying. However, for the first time, I

started looking into it about a month ago and I found that there's a

thing called short-term tax strategies—not really a loophole, but that's

what people call it. This involves buying a property, let's say a

property of $1 million as an example, and using cost segregation along

with bonus depreciation to write off our W-2 income this year. I have a

few properties that I have been looking at, and most likely I'll

purchase one this week. If cost segregation is completed before the end

of the year and the property is listed on Airbnb and we meet the

material participation requirement, is it all realistic to do this year?

It's also hard to find a CPA who can answer these questions on an

hourly basis. Please provide a list of CPAs who are experts in

Short-Term Rentals (STRs) and could work on an hourly basis. Thanks.

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  • Bradley BuxtonBusiness Member
    Real Estate Agent · NV · Member since 2023 · 1k+ posts · 715 votes
    11mo

    @Prem S.

    You are running out of time to get your 100 hours in for the year. That being said I have had clients make it work. It would be good to talk with a CPA about this situation before you put an offer in. There might be different ways to reduce your tax burden without the hassle of a STR. I'll send you a PM of a couple that my clients work with that focus on real estate strategies.

  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    11mo
    There’s more nuance than this post suggests. You need the following: 1. An average stay of 7 days or less (with a minimum of two stays before year end); 2. Material participation (500 hours, 100 hours and more than anyone else’s time, or substantially all the activity. If you meet the latter two, you will need to document the time of all others in the activity. 3. You can’t use too much for personal use otherwise you will negate many of the benefits. As you’re getting towards year end, working with a cpa on an hourly basis makes sense if you’re in the exploratory phase. But, if you’ve closed or have a property under contract and are trying to execute the STR Strategy this year, I’d recommend engaging with a cpa asap.
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    11mo

    Will you be using a mortgage to buy the property? If you are, most lenders will require 30-45 days to close which puts the purchase into 2026.

    If you do an all cash deal and close asap, its theoretically possible.

  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    10mo

    I would get a good CPA and see if your plan works for the tests.  If so, you can close in 30 days but if it is not turn key it will be tough to furnish and launch by EOY.

  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    10mo

    Hurriedly investing in something to save on tax often doesn't work out well.  

    Find good investments that make money and pay your taxes.  Pretty easy concept.  This whole "tax loophole" deal isn't a loophole. It's tax policy, and it isn't expiring in 2025.

  • Member since 2018 · 5 posts · 3 votes
    10mo

    late to the game.. thank you for all the input. I wholeheartedly agree that doing STR for tax benefits alone doesn't make sense and it's not a loophole. I am engaging with CPA next Monday but I hope someone can confirm the following.

    I have clarity on most of the requirements.

    My biggest worry is material participation. Not because someone will put more hours than I have, but because I may not have enough time to put 100 hours physically. For example, if I acquire the property on 12/10, spend 12/11–12/18 getting it ready, and list it on Airbnb/VRBO on 12/19, my understanding is that for material participation I can only count hours from 12/19 onward — i.e., after the property is available for bookings, not after property was acquired or after obtaining the STR permit.

    Can someone confirm?

  • CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 94 votes
    10mo

    @Prem S., hi. 

    You’re definitely looking in the right direction, but there are a few tripwires to be aware of.

    For the STR strategy to work this year, the property has to (1) be placed in service in 2025 (furnished, available and actually listed for rent), (2) qualify as a short-term rental for tax purposes (average stay under 7 days, or under 30 with substantial services), and (3) meet one of the material participation tests (for most W-2 folks that’s usually 100+ hours and no one else, including cleaners/PM, doing more than you). 

    On finding help, I'd keep an eye out for the CPAs active in Biggerpockets with proven real estate experience, or search for phrases like "short-term rental CPA," "Airbnb tax CPA," or "real estate investor CPA"and then filter by folks who talk specifically about STR material participation and cost seg in their content.

  • Member since 2018 · 5 posts · 3 votes
    10mo

    Thanks again for all the context. My financial advisors are recommending me against trying to pull it off this year.

    My tax advisor strongly cautions against rushing to claim the full tax deduction for the 2025 tax year. Their primary concern is the "difficult fact pattern" created by closing on a major asset in early December and attempting to operationalize the business and accrue Material Participation (MP) hours within a three-week sprint. The advisor notes that this situation creates a risk of looking like a "manufactured tax shelter," which increases my audit risk.

    The core financial risk is that if I miss the minimum required MP hours by the December 31st deadline (or got audited and couldn't defend), the substantial 100% Bonus Depreciation loss that I generate from the Cost Segregation study will be disallowed as a deduction against 2025 active W-2 income and become a "suspended passive loss." This would mean I took on all the risk and expense of the transaction for zero immediate tax benefit. My advisor strongly recommends setting the official "Placed in Service" date for January 2026. Since the Bonus Depreciation rate is 100% in 2026 (based on current legislation), and I lose no dollar value of the deduction; this merely guarantee the full 12 months to accrue the necessary MP hours and secure the deduction against your 2026 income.

    While at the fundamental level I agree with my tax advisor, I have already accrued 20+ hours via inspection, insurance shopping and other administrative tasks and have a good plan of action for rest of year. I genuinely want to hear from other folks especially if you have gone through something similar or you are CPA and have supported this kind of cases for your clients. What do you all think? By pushing to 2026, I will miss to offset the 2025 W2 income since I already have plan to get another rental property in 2026.

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