STR Newbies - Running the numbers & TAXES in particular

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STR Newbies - Running the numbers & TAXES in particular

Gina Russoniello Tiwari
Attorney · Member since 2021 · 11 posts · 14 votes

Hello wonderful BP community, 

Spouse and I are looking to get started in the STR business. We are new to RE investing in general (so far our only RE holding is a passive LP interest in a RE fund). We are trying to follow Brandon's advice and run the numbers on about "100 potential deals" before we strike. In doing our research on the BP site so far, we came across the massively helpful STR income calculator shared by the author of this article:

https://www.biggerpockets.com/...


Being brand new to this, however, we don’t know what to plug in as our applicable tax rate. Husband is employed full time (W-2) in healthcare and I recently switched from a W-2 to a 1099 independent contractor position as a lawyer (I’m giving these details to point out that our main business/income is not our RE holdings, but we’d love for it to someday be). We know what our tax rate was as a married couple last year, but not sure if that’s helpful here. 

Ultimately my questions are: 

1. Does our income generated by our "STR business" (say we form a company to hold a handful of properties) have an income tax rate that is separate from our own personal rate, or do we just claim the income on our own personal tax return (subject to applicable deductions)?

2. If you run a STR business, do you pay the additional self-employment tax rate on the income your STRs generate?

3. Any other tips you guys have (related to taxes or otherwise) to take into account while running the numbers on our potential deals?

Note: I'll ultimately run these questions by our accountant too, but wanted to start here to see if any more experienced STR folks would be willing to share insights on what you've been doing.

Thank you!

Gina

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    1. Depends on entity. LLC is generally a pass through on your taxes.

    2.Not if you don't have an employees.

    3.Document and claim all expenses and depreciation. 

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5y

    @Gina Russoniello Tiwari

    Most calculators won't factor in income tax into the calculation because it would be too complicated to factor in as there are many things to consider.

    Many people who use the bracket are in a different tax bracket. Furthermore, we live in a progressive tax system so technically your STR income can be taxed at multiple income tax rates.
    Some taxpayers live and invest in a state without a state income tax while others live in a state with a state income tax rate.

    Furthermore, STR's can generate positive or negative taxable income. The way the tax system works is that those with negative taxable income from a STR may or may not be able to utilize the tax loss in the current year.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
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  • Gina Russoniello Tiwari
    OP
    Attorney · Member since 2021 · 11 posts · 14 votes
    5y

    @Basit Siddiqi and @John Underwood - Thank you both! Very helpful. 

    I was also able to tune into an STR info session yesterday afternoon where they reiterated much of what you are saying - that the taxes on STRs (and RE holdings generally) vary a lot, may potentially be nonexistent due to depreciation, and accordingly many calculators do not include them.

    Thanks again

    Gina

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