Short Term Rental Tax Loophole in California
I'm interested in using the STR tax loophole to show a paper loss to offset income tax on high W2 earnings. To access that loophole the property needs to be managed by me directly, so I'm looking to by locally in Southern California where I live. While I'm aware that this isn't the most attractive STR market due to the price of real estate and the regulations in much of LA county, it's unlocking a large amount of income tax and building equity in a real estate asset even if it doesn't generate a huge amount of cash right off the bat.
Does anyone have any experience using a similar strategy or have any recommendations for a CPA to help execute that strategy?
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#2 Tax, SDIRAs & Cost Segregation Contributor
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- Chicago, IL
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#2 Tax, SDIRAs & Cost Segregation Contributor
- Accountant
- Chicago, IL
When buying property in California or places with high land value, you need to be aware of the what your ultimate building value will be. for instance, on a $1M purchase, you may have $500k that's land and $500k building. Then, you can accelerate depreciation on a portion of the building portion so I'd recommend seeing if it's still worthwhile from a tax perspective.
Also - material participation is incredibly important. I'd recommend having your cpa review your hours AND it is likely you'll need to keep track of all hours worked by any individuals that worked on your property.
- Aaron Zimmerman
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