Advice/CPA for House Hack STR

[Jorge Alcaraz]

Hi I’m wondering if anyone has tax experience doing a short term rental in a house hack? I just purchased a duplex as a house hack and I’m looking to use the short term strategy to deduct against my W-2. Has anyone done this? 

Also looking for recommendations on a CPA that can help me navigate the renovation and rental. 

Thanks in advance! This is my first property. Any advice or recommendations help! 

[Ryan Thomson]

@Jorge Alcaraz I have done a STR in my house hacks in Colorado Springs. I am also an agent though and qualify as a real estate professional on my taxes. This helps me reduce my taxable income in a lot of ways.

As someone with a W-2 income, I don't believe you can use real estate "losses" or "depreciation" to lower the taxable income on the w-2. You can use it against the STR income and I also believe it carries forward to the next years.

Ask real estate investors in your area who they use for a CPA. A CPA is worth every penny. 

[Ryan Thomson]

For a pure rental property you can depreciate the the purchase price of the house minus the value of the land divided by 27.5. For a house hack, you can then depreciate that number by the percentage of square feet that your home is used as purely a rental. For a duplex it would be 50%.

Examples. 450k purchase price. Land is 50k. you have a duplex and live in one side by yourself and rent the other.

450k-50k =400k

400k/27.5 = 14,545

14,545/2 = 7,272.

You can deduct $7,272 from your RENTAL INCOME each year. Or in other words the first $7,272 you make is tax free. You of course have to make that much in rental income to deduct that much. I think it carries forward if you don't use it all though. You really need to talk to an accountant if this is something you want to do. They are worth every penny!

[Basit Siddiqi]

It is possible with proper documentation and active participation to have your rental losses offset other forms of income such as Wages, Interest, Dividends, etc.

There are added complexities with the return since it is also a house-hack.
Certain costs such as mortgage interest, taxes, insurance have to be properly split between business and personal.

[Sean O'Keefe]

Quote from @Ryan Thomson:

For a pure rental property you can depreciate the the purchase price of the house minus the value of the land divided by 27.5. For a house hack, you can then depreciate that number by the percentage of square feet that your home is used as purely a rental. For a duplex it would be 50%.

Examples. 450k purchase price. Land is 50k. you have a duplex and live in one side by yourself and rent the other.

450k-50k =400k

400k/27.5 = 14,545

14,545/2 = 7,272.

You can deduct $7,272 from your RENTAL INCOME each year. Or in other words the first $7,272 you make is tax free. You of course have to make that much in rental income to deduct that much. I think it carries forward if you don't use it all though. You really need to talk to an accountant if this is something you want to do. They are worth every penny!

Yes, prorating the expenses is critical for a duplex house hack. Also, you need to make sure that you meet the IRS definition (avg. 7 days, not more than 30 days, personal days 14 days) of a short-term rental or you could lose the ability to offset W-2 income.