General feeling about STR loophole for college cost offset

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General feeling about STR loophole for college cost offset

Philip W.
Tenafly, NJ · Member since 2017 · 17 posts · 6 votes

Talking with a specialist in this for help sourcing and managing a STR for the purpose of income of course, but also exploiting the depreciation loophole for tax saving and FAFSA reporting for college financial aid etc etc.

I'm pretty confident in the logic behind the loophole, just not experienced in the STR market. I've heard a lot of horror stories lately but I also know it's highly localized. As with all RE, location is everything.

My concern is economic downturn. Assuming we're heading into some headwinds, is this a wise direction right now? Still doing research but would love to hear from anyone that has experience with STR's during an economic downturn. We haven't had many sustained since 2009. Anything I should be aware of beyond the usual? I'm aware that I need to research the local regulatory climate and market saturation. What else ya got?

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

I would 100% recommend consulting your CPA, and/or a CPA that specializes in Real Estate and may have some experience with the FAFSA. That said, STR's can still cashflow in 2025 and beyond but you will need to choose a market that is not totally saturated and do your analysis carefully. Likely a cookie cutter average home will not cut it, it likely has to be well located and extremely well outfitted. Even then it will have ups and downs over the years likely moving with the national and local economy. I think you should not buy an STR purely for the tax advantages but they should be a plus, otherwise it is the tail wagging the dog.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    10mo

    Wouldn't this also show you make more money which may hurt the FASA application?

    1Reply
  • Jules Aton
    MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
    10mo

    Sounds like a lot of work without a guaranteed benefit.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    10mo
    Quote from @Philip W.:

    Talking with a specialist in this for help sourcing and managing a STR for the purpose of income of course, but also exploiting the depreciation loophole for tax saving and FAFSA reporting for college financial aid etc etc.

    I'm pretty confident in the logic behind the loophole, just not experienced in the STR market. I've heard a lot of horror stories lately but I also know it's highly localized. As with all RE, location is everything.

    My concern is economic downturn. Assuming we're heading into some headwinds, is this a wise direction right now? Still doing research but would love to hear from anyone that has experience with STR's during an economic downturn. We haven't had many sustained since 2009. Anything I should be aware of beyond the usual? I'm aware that I need to research the local regulatory climate and market saturation. What else ya got?

    The STR loophole (terrible name as not really a loophole, but seems to be the common name) allows you to write ff passive losses. Does it make sense to operate an STR with passive losses so that you can write them off. I try to make money on my RE.

    I can see this if you plan to combine this with an accelerated deprecation/cost segregation.   

    Is FAFSA only based on one year? If so, it can work by combining the STR loophole with accelerated depreciation. Recognize STRs are not passive, Being a good STR host takes time and requires time to learn all that is necessary. Do not think it will passive. The loophole requires your time to be greater than anyone else's time which excludes the use a PM.

    Good luck 

    0Reply
  • Account Closed
    Investor · FL · Member since 2016 · 332 posts · 388 votes
    10mo

    It does offset income used to determine Federal Financial Aid. This can increase offerings from schools with other aid. You could potentially get the Pell Grant and qualify for loans.  FASFA pulls directly from the IRS now and you do not enter financial information.  Also they are using two year old data.  So for the 2026-2027 school year they pull 2024 tax return data. So if you are looking for reducing income on the tax return for federal aid plan further out.

    0Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    10mo

    I would 100% recommend consulting your CPA, and/or a CPA that specializes in Real Estate and may have some experience with the FAFSA. That said, STR's can still cashflow in 2025 and beyond but you will need to choose a market that is not totally saturated and do your analysis carefully. Likely a cookie cutter average home will not cut it, it likely has to be well located and extremely well outfitted. Even then it will have ups and downs over the years likely moving with the national and local economy. I think you should not buy an STR purely for the tax advantages but they should be a plus, otherwise it is the tail wagging the dog.

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
    WebsiteView Page
    2Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    10mo

    So we have been running a STR for going on 9 years now and the income or depreciation didn't change anything on the FAFSA for us.

    0Reply
    • Dan H.Pro Member
      Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
      10mo
      Quote from @Michael Baum:

      So we have been running a STR for going on 9 years now and the income or depreciation didn't change anything on the FAFSA for us.

      I assume you are using standard depreciation.  What if you purchased this year and depreciated 10% of the non land value!  Now what if it was a $1m condo with very low land value?   Close to $100k of deprecation this year.   That could put a good dent in most incomes.

      i believe “STR loophole” (ugh) has to be combined with something that provides large passive losses.   I would highly recommend buying an STR that experiences high losses without accelerated depreciation.

      i think the plan can work, but it likely requires combining strategies.
      0Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    10mo

    I would not be buying short term rentals just for the tax benefits. You should be buying because they're a good investment. It does seem like a lot of work without any guaranteed benefit. 

    If the STR makes sense for you and your lifestyle, then do it . If not, don't.

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    • Collin HaysBusiness Member
      Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
      10mo
      Quote from @Aaron Zimmerman:

      I would not be buying short term rentals just for the tax benefits. You should be buying because they're a good investment. It does seem like a lot of work without any guaranteed benefit. 

      If the STR makes sense for you and your lifestyle, then do it . If not, don't.


       this.  

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      SMOKY MOUNTAIN FALLS INC.51 Review
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      1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    10mo

    If you have the resources to invest in a short-term rental, there's no way that your child is going to qualify for any governmental financial aid, no matter how hard you try to cook the books.  

    [email protected]806-672-7102
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    0Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    10mo

    I like what Aaron said above, getting into STRs, and really real estate in general, usually takes more work than most people admit. That said, a lot of people genuinely enjoy it because it doesn't feel like work to them, and they get to see the tax benefits and long-term growth potential. And as others mentioned above the STR strategy isn't exactly a loophole, but it can allow you to potentially offset W‑2 or non-passive income without needing to qualify as a real estate professional so that is what makes it a "loophole". This typically helps people with higher W‑2 income who can actively participate, or have a spouse who can.

    If I were you, I’d keep this in mind for after school or once you have a higher W‑2 income to offset. Right now, a great place to start might be house hacking, living in part of a property while renting out the other units. This lets rental income cover your mortgage and expenses, while also giving you access to tax benefits like deductions for mortgage interest, repairs, and depreciation.

    As far as market conditions go, real estate is one of the few investments that tends to hold up over time because people always need housing, and property values and rents generally recover after downturns. While STRs can be more volatile, a well-chosen property in a strong location, especially near a college town or high-demand area (like the beach or mountains) can offer both cash flow and tax advantages while you gain hands-on experience managing a property.

    Good luck if you do decide to invest, there still are plenty of opportunities out there if you strategize and figure out what works best for your situation. Happy to connect.

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  • Dina Schmid
    Member since 2024 · 107 posts · 55 votes
    10mo

    This is only going to work if your child is applying to schools that meet need as defined by FAFSA. If your child applies to any CSS Profile schools, you will likely put yourself in a worse position to receive aid by owning an investment property. That is because some schools count 100% of the value/equity of an investment property as a source of paying for tuition. (Some of the CSS Profile schools will also expect you to take out a home equity loan and/or stop putting money in a 401K as a source of paying tuition. They'll even penalize you for having a stay at home parent who isn't working - even if that parent is homeschooling younger siblings. BTDT.)

    Run the Net Price Calculator for the schools you're thinking your child will attend and see what you get.

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