All Forum Posts by: Account Closed

Hey Dylan,

First off i would say not to make a decision within 6 months of this happening. Lots of personal stuff is going on in your life as well and you want to be in the right mindset to decide. In the meantime, relax, do some research and look into different strategies that appeal to you. You mentioned airbnb and short term rentals. those can be (under the right circumstances) very tax-favorable and have you move towards your FI journey even faster with a lower tax bill. Best of luck in your journey! 

Hey Jack, definitely talk to an accountant. You don't want to make a big mistake and have to unwind it years later or worse face an audit. You do get tax benefits for rental properties (in general) but I would need to know more about your situation to know which ones applied where for you. 
Best of luck on your journey in real estate! My advice would be get an accountant early on to save massive headache going forward

As Michael mentions above, there are two DIFFERENT participation tests for REPS and STR "loophole". I would need to know more about your other sources of income but assuming its a w2 you cannot offset that income with the losses you mentioned.

I use fidelity, these guys are the gold standard IMO 

Hello @PJ Arora, 

Im glad to see you excited about tax strategies. Indeed you can offset w2 with short-term rentals. But like everything, there are catches and nuances here. 

For individuals navigating the demands of a w2 job and grappling with substantial tax obligations, exploring the potential of short-term rentals unveils a compelling avenue to mitigate tax burdens. A noteworthy tax loophole, particularly beneficial for those yet to attain Real Estate Professional Status, offers a strategic approach to potentially offsetting OR EVEN ELIMINATING the impact of high job-related taxes.

At its core, this tax loophole revolves around discerning between passive and non-passive activities within the realm of rentals. Those whose rental pursuits fall under the non-passive umbrella may find solace in this tax-saving provision. The federal tax code establishes stringent criteria, including guest stays limited to seven days on average and the provision of basic hotel-like services, to qualify for this advantageous tax treatment.

Understanding the mechanics of the short-term rental tax loophole is imperative. Section 469 of the federal tax code initially classified all rental properties as passive. However, an essential exception emerged in the 1990s, allowing specific rental income to be categorized as non-passive. To leverage this benefit, prospective property owners must engage in short-term rentals and provide substantial services to guests, such as daily cleaning, meal provisions, or transportation services.

Additionally, navigating a material participation test becomes crucial. This entails dedicating a significant amount of time and effort to the short-term rental business. Meeting the test criteria, which includes working over 500 hours in the business, overseeing all necessary tasks personally, or substantially participating alongside a partner, facilitates the strategic utilization of the short-term rental tax loophole. For individuals tethered to a W-2 job, this presents an opportunity to judiciously manage their tax liabilities while exploring supplemental income avenues.

If this sounds like something that fits your investing goals, please reach out. We would be more then happy to assist in answering any questions!

You still maybe able to get some benefits. As Sean mentioned above the property needs to be placed in service. What does that actually mean though? It means when it is ready and available for a specific use, regardless of whether or not it is actually used at the time. 

Hey @Daniel H., 

Congrats on getting into real estate investing! 

As accountants on BP, we are not allowed to self-promote. To help you in your search: be sure to find an accountant that is willing to grow with you, and is not too high priced fee wise. Not to low either, you don't want to go with someone who is just focused on price as this is a quality of a not so great accountant. Accountants are in such demand, that the best are not even accepting clients half the time.

The other problem I see often with accountants on here is that they specialize in larger investors, and have really high prices when you as a smaller investor do not need all the bells and whistles.

Another thing I see is folks thinking they need to have a tax professional in their state. We as a firm have investors working with us who have rental properties all over the US big and small.

Finding a real estate-focused tax professional and one who can help with advisory and grow with you would be my suggestion to focus your efforts on finding. Best of luck in your search!

Hey @Kirsten Crotts, 

As accountants on BP, we are not allowed to self-promote. To help you in your search: be sure to find an accountant that is willing to grow with you, and is not too high priced fee wise. Not to low either, you don't want to go with someone who is just focused on price as this is a quality of a not so great accountant. Accountants are in such demand, that the best are not even accepting clients half the time.

The other problem I see often with accountants on here is that they specialize in larger investors, and have really high prices when you as a smaller investor do not need all the bells and whistles.

Another thing I see is folks thinking they need to have a tax professional in their state. We as a firm have investors working with us who have rental properties all over the US big and small.

Finding a real estate-focused tax professional and one who can help with advisory and grow with you would be my suggestion to focus your efforts on finding. Best of luck in your search!

Great post! thank you for sharing. Wonder if that means folks with REPS can invest here to get credit towards their qualification 

Fun not obvious one: 
Bonus depreciation from other equipment assets (ATMS, cars, etc)