All Forum Posts by: Brian Kiczula

Hey BP family,

Frustrated that your real estate "paper losses" can't offset your W-2 income? They're usually stuck in a "passive" bucket.

Here's how the "STR Loophole" legally moves those losses to your "active" bucket to slash your tax bill. It boils down to 3 steps.

The 3-Step Playbook

1. The 7-Day Rule: Your average guest stay must be 7 days or less. This is key because it reclassifies your STR from a "rental" to a "business" in the eyes of the IRS.

2. Material Participation: You have to actively run the business. The most common test is:

• Spend >100 hours/year on the property.
• Spend more time than any other single person (like your cleaner).
• Pro Tip: Track your hours meticulously! This is your proof.

3. Cost Segregation Study: This is how you create a massive "paper loss" to use. A cost seg study accelerates your depreciation, generating a huge write-off in Year 1, especially with bonus depreciation.

The Result in a Nutshell

Imagine you earn $250k from your job. Your new STR, after a cost segregation study, generates a $150k loss.

By following these steps, that loss becomes "active," and you can potentially lower your taxable income from $250k to $100k. The tax savings can be massive (often $40k+).

Disclaimer: This is not tax advice! You absolutely need a savvy CPA who understands this specific STR strategy to do it right.

Has anyone here successfully used this method? Share your experience in the comments!

@Jason Fournier I would be happy to work up an estimate of benefit for you.

Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.

The STR loophole can work well if you materially participate, but don't overlook other asset types with business activity use like self-storage, laundromats, or small industrial.

Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.

If you’re not a real estate professional under IRS rules, your rental losses, including accelerated depreciation from cost segregation, are usually considered passive. Passive losses can only offset passive income (like net rental income or gains from other passive investments), not W-2 or active business income.

That’s why your CPA and the cost seg provider mentioned limitations. However, it doesn't mean you can’t benefit. It just means you’ll want to confirm that you (1) have passive income to offset or (2) may qualify for special exceptions like the $25K active participation rule (subject to income phaseouts).

I recommend getting a free estimate and reviewing it with your CPA. Confirm you can use the deductions, and that the ROI makes sense for your situation.

Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.

@Lauren L., the OBBB does bring back 100% bonus depreciation. However you will want to talk to your CPA about the eligibility of this purchase. That said, it's smart to get a free estimate now and review it with your tax preparer to confirm your depreciation benefit and ROI.

Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.

@Jason Milko, I’m not a fan of DIY calculators. They often lack the detail and defensibility needed if you’re ever audited. A detailed engineering-based cost segregation study is the best option. It not only maximizes depreciation but also aligns with IRS audit technique guidelines.

I recommend requesting a free estimate from a reputable provider and reviewing it with your tax preparer. You'll want to confirm two things: (1) that you can actually use the accelerated depreciation, and (2) that the ROI justifies the upfront cost.

Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.

@Bruce D. Kowal well said I am new to BiggerPockets and just starting to connect with other professional on the platform. I recently came across a company that had a IRONCLAD Audit Protection. 

Brian Kiczula | CostSegRx
Cost Segregation Specialist

@Bill Hampton well said I am new to BiggerPockets and just starting to connect with other professionals on the platform.

Brian Kiczula | CostSegRx
Cost Segregation Specialist

@Heidi Kenefick I recommend getting a estimate on a study and running it buy your CPA. Documenting your participation is going to be key if you are involved in an examination. 

Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.

I would be happy to work up an estimate. I will need your most recent fixed asset schedule to get started. 

Brian Kiczula | CostSegRx
Cost Segregation Specialist

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice.