All Forum Posts by: Katie Ripp

@Tim Delaney hit in on the head here! If the property is in service then it’s reported on your 2024 tax return. Since they have been rented out, it’s in service. 

Definitely recommend reading up on or talking with a CPA on what expenses can be deducted as a repair and what has to be capitalized, as that will affect possible losses. 

Depending on if you qualify for the special allowance for active RE, you may be able to take up to $25k in losses (unless you are full time in real estate and may be able to use real estate professional status). 

Homestead loan won’t affect any of this. 

Recommendations for you would be to keep super meticulous records of all the costs you’re putting into the property, so your tax pro can make sure you’re capturing everything 1) correctly and 2) in the most tax advantaged way. 

When you do move in, it will be important to separate out direct and indirect expenses. Indirect expenses are expenses for the entire property that are 75% deductible (ex: property tax, insurance, mortgage interest). Direct expenses are expenses directly attributable to the rental units (ex: rental unit repairs/cleaning, advertising, rental adm exp, etc)

This is a really well done explanation, especially with the specific examples. Would love to see your post on Sec. 179!

It's SO SO important to be careful of personal use with STRs!!

Hi Eric! Just wanted to chime in from a tax perspective, something to keep in mind and plan to have some discussions with your CPA:

Using the property for personal use during the year will prevent you from recognizing some expenses on your property. Additionally, if you have too many personal use days, losses may be further limited by the Sec. 280(A) vacation loss limitations. 

There are some great tax strategies for short-term rentals, but very important to be aware of the personal use rules to make sure 280(A) doesn't become an issue.

A lot of great options here. 

My initial thought here was seller finance, as @Ryan Irwin mentioned! Allows you to get out of landlord responsibilities, and keeps a steady check coming in each month like rent does. Plus you get interest income on top of your principal payments, too.

Also allows you to spread the taxable gain out over time, which would help you keep taxable income low and potentially still contribute to Roth IRA in the year that you sell.

If the intent was always to flip the property, it shouldn't be taxed as long-term capital gain no matter when it's sold. I personally recommend working with a CPA who prioritizes integrity and accurate tax return filings, so that if you're ever audited, you won’t face back taxes, penalties, or interest.

Hi Anna!

1) I'll put the summarized list of MP activities at the end, but generally speaking the way to think about it is: "Is this activity/task essential for the operations of the STR? If I don't do this task, the property would no longer be operational" -- so something education or networking wouldn't be material participation hours.

To answer your question though, yes home improvement and marketing counts. Activities prior to launch, but after you have purchased the property, also count.

2) I'd recommend reaching out to the other individuals that work on the property and ask them for an email or time log of their hours on your property. If you get audited, this will be good to have on file.

3) That's tricky, the dash 4 grouping election is based on facts and circumstances. I'd want to know more information to make a good recommendation, but it sounds like you would have a strong argument if everything else is the same except for location.

MP tasks

Tenant Management:

• Showing properties, screening applicants, and preparing leases
• Welcoming tenants and addressing inquiries
• Collecting rent and managing evictions

Property Maintenance:

• Cleaning, repairs, and inspections

Administrative & Marketing:

• Supervising staff, purchasing supplies, and promoting rentals (ads and website)
  

Hi Jason,

The expenses that you are paying to rehab the property are required to be captured in the cost basis of the property when you purchase it. You cannot deduct or capitalize them before you own the property. 

When you sell a rental property, the portion of the sale that is taxed as capital gain can be reduced by capital losses from stock transactions. So if you are selling a property in a given year, it might be worthwhile to talk with your CPA and see if selling some stock at a loss would be helpful (since otherwise capital losses are limited to $3,000 as Joshua mentioned). 

Hi Zachary,

You are right - that is a lot of equity! But man that interest rate is great. 

From a tax perspective, I am assuming you would like recognize $0 of the gain on your property in this potential 1031 exchange. Assuming that's true, I would recommend looking for a replacement property (or properties - you can purchase multiple in the exchange) with value of at least $725K (selling price).  To defer all of your gain, you'll want to trade up in value, replace all the debt (meaning new properties have at least $350,700 of debt), and not take any cash from the exchange (this is boot which = taxable gain).

As for replacement property, it just has to be real property - meaning it can be commercial, STR, land, etc!

Hope this helps!

This is a great question, and love all the responses!