All Forum Posts by: William C.

We did one of these at our blog using Javascript. I don't think I can post a link. But you can pretty easily find.

FYI for other bloggers, ChatGPT is a powerful tool to do this kind of stuff.

I'm unsure why two of my colleagues suggest that 5-yr and 7-yr property would be fully depreciated by 2028.It would only happen IF these classes of properties were separated. But since there was no cost segregation done, they have not NOT been separated. 

Sorry, this was technical and directed at fellow tax professionals.

Bottom line: still potentially a significant benefit from cost segregation in 2028.

I would also consider the non-tax aspects of it before going into it.

Be mindful that this is a hospitality based business and the people who stay at your place will desire things such as cleanliness and that items that are commonly found in most houses. 

The requirement that most people look to pass is spending 100 hours and more hours than others. 100 hours is the minimum and it can take potentially more hours to achieve this.
Do you have the bandwith to spend this additional time?

Everyone has addressed the key facts above. A couple points I would add:

1. You want to figure out if you can utilize the property's losses. Perhaps you have other properties that the losses could offset or you have gains on this property and have losses from other properties.

2. In 2028, you may get a substantial benefit. Since the property was PIS in 2023 and you'd be looking to do the cost seg in 2028, most of the 5 and 7 year useful life assets will be mostly depreciated anyways. 

3. I would ask why you're looking to convert it into A short term rental? Is it tax Benefits? Cash flow? If you don't have the right temperament for this, it 's probably worth keeping as an LTR assuming it cash flows 

The 7-day average stay test is measured on a calendar-year basis. If you switch to STR in May 2027, it'll be tough to get the average under 7 days for that year, but you could potentially structure it in 2028 if you meet the other STR requirements and file a Form 3115. Timing also matters for bonus depreciation—eligibility depends on when the property is considered placed in service.

That said, if your main goal is offsetting W-2 income with losses, it may be worth asking a few questions first. Do you make less than $150,000 in modified adjusted gross income? If so, you might already qualify for the $25,000 passive loss allowance against W-2 income while it's a long-term rental. Also, are you married? If you are, does your spouse work? If not, your spouse could potentially qualify as a real estate professional, which could open up other options to use losses now without waiting for the STR strategy.

Before converting, I’d get clear on income levels, filing status, and whether real estate professional status is possible, since those factors could change the approach significantly.

@Katie Ripp this doesn't make a lot of since for a couple reasons:

• If @William C. placed this property in service in 2023 and continues to rent it as an LTR until 2027 as you suggested, the depreciation adjustment on Form 3115 is likely to wipe out any incremental bonus depreciation William could take. Even if this wasn't the case, see my second point below
• Bonus depreciation for properties placed in service before Jan 20th 2025 will already be phased out in 2028.

Let me know if I missed something.

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

The 7 day average stay is determined on the full, calendar year basis. So if you switch to STR in May 2027, it would be challenging to get under the 7 days average stay for 2027.

Maybe consider mid-term stays for May 2027-December 2027 and then switch to only <7 STR stays in 2028. If you meet the other STR requirements for 2028, then yes you could apply a cost segregation study for 2028 tax year (with a Form 3115).

Also, the amount of bonus depreciation you would potentially take with a cost seg study it subject to the year that you placed the property in service, which was 80% for 2023.

First, to qualify for 100% bonus depreciation in 2025 under One Big Beautiful Bill Act, the investment property is required to be new construction or acquired after Jan 19th 2025. In addition, you need to place the property in service after Jan 19th 2025. 

Totally agree with all the comments on here. A couple factors I see with people wanting to do short term rentals is that it's a true business. Are you ready for that commitment? 

Then, when you're figuring out which property to buy, are you looking for a good deal or tax benefits? The tax benefits aren't free either. They do get recaptured or a 1031 exchange upon sale. 

None of this is meant to say not to do short term rentals, you should have your eyes wide open when you purchase and know what's involved. I do feel that a calculator like this could be easily developed but to@Michael Plaks point, the cost seg companies could do this for you, although I do believe you need to let them know of the buildings depreciable basis.