All Forum Posts by: William C.

@William C. If you and your spouse earn $300K in W-2 income and operate a short-term rental (STR) with average stays under 7 days, actively participate, and run a cost segregation study that creates a $60K loss, that loss can offset your W-2 income—even without qualifying for real estate professional status. This would reduce your taxable income to $240K. Assuming a combined federal and state tax rate of ~38%, you'd save around $22K–$24K in taxes—not the full $40K you currently pay. Any unused portion of the loss can carry forward to future years to offset STR or other non-passive income if material participation continues.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@William C. that's pretty much the way it works. But it's tricky.

The two main things to focus on? Average rental interval of 7 days or less... and you and your wife materially participating (by the way, not actively participating that's something different).

If you get a cost segregation study done, as a guess you can maybe deduct 20% of the purchase price for 2024 tax return. You will also probably be able to deduct nearly 100% of the furniture by applying the Section 263 de minimis safe harbor.

But you need to be careful of some mistakes that blow up the strategy even if you get the above stuff right. For example, you do need to not get entangled in the Section 183 (aka "hobby loss") rules. And you need to not get limited by the Section 280A mixed use dwelling rules.

Tip: If you're doing the STR truly, truly, honestly, honestly to build wealth and earn a return on your investment? You don't need to worry about Section 183. And as long as you have zero personal use, don't discount the rent to people, don't rent to family members, you don't need to worry about Section 280A.

The depreciation would directly offset your taxable income at least at the federal level, not sure about your state. So $60k in depreciation losses would lower your taxable income by $60k

Combined W2 income of $300,000 should generate more than $40,000 in taxes, especially with state taxes added. You're looking at some wrong number to measure your tax burden.

Losses do not offset taxes, they offset taxable income. So if you really have a $60,000 loss, you would be paying taxes on $240,000 of income instead of $300,000. That may lower your tax bill by maybe 20,000.

@Nathaniel C. Can’t you just provide your insurance company with tenant’s renters insurance policy info and allow insurance companies to hash it out? I think it’s reasonable for tenant to pay deductible if it really was their fault, if that’s allowed by your policy, but seems weird to me that you could expect tenant to know hanging a picture in that one spot would cause a leak. If tenant was warned not to hang anything there without using those sticky wall hangers, or if they used something not meant for home use, then maybe.