All Forum Posts by: Katie Ripp

First off, congrats!!

I would be happy to speak to the potential tax / cost seg benefit..

If you are going for the STR strategy, you will want to make sure that the average stay of your rental is less than 7 days. Then you need to materially participate in the activity, here are the tests to meet MP: https://www.investopedia.com/terms/m/material-participation-...

I recommend tracking your hourly diligently in a material participation time log.

I also recommend that you do not use the property for personal use, or at least keep any personal use to a minimum, and definitely below 14 days, as personal use will dilute the benefit of the cost seg. 

Finally, consult with a CPA and have them review your situation, plus ask for a recommendation on whether to do a cost seg and which cost seg company they recommend.

For a property placed in service in 2024, 60% of the value of personal property and land improvements identified in the cost seg will be bonus depreciated in the first year. The remaining depreciable basis will be captured over future years.

You will still be able to benefit from the losses whether its set up as a MMLLC or SMLLC since you are married.

Main thing to keep in mind from the tax side of things is that MMLLC may have a Form 1065 filing requirement each year and increase your tax prep fees. SMLLC is disregarded and does not have a separate filing requirement (gets reported straight on the Form 1040).

I can't speak to the implications of a potential divorce, I would consult an attorney. 

I agree with all the great things said on this post. Holding long-term is generally the best route IMO. 

As mentioned, there may be options when you do decide to sell like a 1031 exchange. With Austin being a hot market, you could lose out on a lot of appreciation.

If you wanted to get some numbers to think through the different scenarios and tax implications, I would recommend consulting with an accountant/CPA!

It sounds like they are not knowledgeable in STR tax. If the property was rented less than 7 days on average during the year, and you materially participated in the activity, those losses would be nonpassive. No W-2 limits.

There is an excess business loss limitation, but that's $578,000 for married filing joint taxpayers. Basically you could only recognize up to 578K of business losses again other w-2, int/div income. Maybe that's what they are referring to and have the number wrong?

This is a great question, and many people encounter this situation when they're just getting started!

It seems the accountant was highlighting that a CPA (Certified Public Accountant) can represent you before the IRS, while someone without a CPA license or Enrolled Agent (EA) status cannot. This representation is crucial if you're ever audited.

Regarding whether to hire a CPA versus just a tax preparer: Real estate tax is highly specialized, with numerous code sections and rules specific to the field. Most tax accountants don't exclusively focus on real estate tax, so they may lack the in-depth knowledge that a CPA specializing in this area would have. Given the complexity and potential tax-saving opportunities in real estate, it's wise to consider hiring a CPA with expertise in this field.

Many clients who work with non-specialists find that their non-real estate preparers lack the specific knowledge to help them minimize taxes through strategies like depreciation, the de minimis safe harbor, partial asset dispositions, 1031 exchanges, navigating real estate professional status, the short-term rental loophole, and more.

If you are looking to qualify as a real estate professional, use the short-term rental strategy, or complete a 1031 exchange, I would without a doubt recommend working with a real estate CPA.