Depreciation for STR partnerships/joint ventures

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Depreciation for STR partnerships/joint ventures

Kevin Berry
Member since 2026 · 1 post · 0 votes

I'm getting into short term rentals. To start out, I'm am partnering with a family member. They will provide half of the capital and I will provide the other half. I will also be in charge of the day to day management (I will get a management fee) and they will be a silent partner. The plan is for me to qualify for the STR tax "loophole." If I meet the requirements for material participation and all of that, would my 50% of the depreciation count towards my W-2 and theirs would be passive depreciation?

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Jonathan Hersh
Los Angeles, CA · Member since 2026 · 21 posts · 15 votes
5mo

@Christopher Tile is right. it's really about who materially participates. If you're the one meeting the STR participation test, your share can be treated as nonpassive while your partner's stays passive.

Where it gets tricky in practice is how the partnership is structured. The allocation of depreciation doesn’t always have to follow capital 50/50 if the agreement is set up that way, but it has to have economic substance and be defensible.

I’d definitely have a CPA structure it upfront so you don’t end up with the wrong allocation on paper.

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  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    5mo

    Maybe @Christopher Tile can help answer this.

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  • Christopher Tile
    Accountant · Long Island, NY · Member since 2021 · 184 posts · 148 votes
    5mo
    Quote from @Kevin Berry:

    I'm getting into short term rentals. To start out, I'm am partnering with a family member. They will provide half of the capital and I will provide the other half. I will also be in charge of the day to day management (I will get a management fee) and they will be a silent partner. The plan is for me to qualify for the STR tax "loophole." If I meet the requirements for material participation and all of that, would my 50% of the depreciation count towards my W-2 and theirs would be passive depreciation?

    @Andrew Steffens Thanks for looping me in.

    @Kevin Berry Your line of thinking is correct. Since you are the only material participant, only your share of the activity can be nonpassive (material participation + average length of stay of 7 days or less).

    The cleanest approach would be splitting everything 50/50. However, depending on how your family member feels towards the passive losses he/she would be receiving, you could structure it slightly differently. For example, as the operator, you can structure the profit/loss allocation 80/20 (80% to operator / 20% investor) while keeping the capital percentages 50/50. I'd highly advise you talk to a tax advisor when structuring something like this since it's definitely a little more involved. 

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  • Jonathan Hersh
    Los Angeles, CA · Member since 2026 · 21 posts · 15 votes
    5mo

    @Christopher Tile is right. it's really about who materially participates. If you're the one meeting the STR participation test, your share can be treated as nonpassive while your partner's stays passive.

    Where it gets tricky in practice is how the partnership is structured. The allocation of depreciation doesn’t always have to follow capital 50/50 if the agreement is set up that way, but it has to have economic substance and be defensible.

    I’d definitely have a CPA structure it upfront so you don’t end up with the wrong allocation on paper.

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    5mo
    You will want to document all of your time and everyone else’s time spent on the activity to justify your material participation. You’ll also need to keep track of average length of stay too. Id connect with a cpa and I echo everything Christopher said.
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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 900 votes
    5mo

    Christopher is right that the basic concept works the way you're thinking — your 50% share of the depreciation would be nonpassive (offsetting your W-2 income) as long as you materially participate, while your family member's share stays passive. A few things to make sure this holds up: you'll need a formal partnership agreement spelling out ownership, management duties, and your fee arrangement since the IRS looks at substance over labels. For STRs, material participation means the average guest stay must be 7 days or less and you personally need to pass one of the participation tests — most people use the 100-hours-and-more-than-anyone-else test, so keep a detailed time log. The partnership will file a Form 1065 and issue K-1s, but the passive vs. nonpassive classification happens on each partner's individual return, not the partnership return itself. If you do a cost seg study to accelerate depreciation (which is usually the whole point of this strategy), make sure it's done in the partnership's name since that's the entity that owns the property. This is a solid approach when set up correctly, but the details matter — I'd work with a CPA who understands both partnership taxation and the STR loophole from the start.

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  • Fulton Abraham Sanchez
    CPA| New Clients Welcome| 50 States · Member since 2016 · 430 posts · 93 votes
    5mo

    @Kevin Berry, hi. Yes, if structured correctly, your share of STR depreciation can offset your W-2 (non-passive), while your silent partner's share stays passive. The key is proper setup, documentation, and execution (especially roles, agreement, and material participation).

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5mo

    Hi Kevin,

    You've gotten some good responses so far, it does depend on who materially participates, but I will also add that it also depends on how the activities are structured. With an STR, if you meet the material participation tests, your share of the income and depreciation can be treated as non-passive and potentially offset your W-2 income. That benefit only applies to the person who is actively involved.

    Your partner’s share would generally remain passive since they’re not materially participating, so their depreciation would be limited to passive income. Also keep in mind, if you’re taking a management fee, that portion is typically non-passive income (subject to ordinary tax and potentially SE tax), separate from your ownership share.

    The key here is documenting your hours like Aaron said above and making sure the activity qualifies properly as a short-term rental and not a traditional rental under the passive rules. The structure of the partnership and how income is allocated will also matter, so I would definitely reach out to a CPA who specializes in real estate so you don't miss out on any opportunities because it can get complicated and complex. There are a bunch of good ones on here, interview a few. Happy to connect!

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