Hi everyone, my wife and I are shopping for a STR property. The plan is to manage it ourselves, and enjoy the property while we are there doing work on it (for material participation). I'm working a W2 job for a few more years before retirement. The long-term plans for the property are a bit hazy, but we don't have kids and are not going into it with a plan to eventually sell, so long term tax implications are not so important. I've been educating myself for a few months and think I have a reasonable plan, but I am hoping to get some feedback. The regular contributors on this board seem very knowledgeable and willing to help; any commentary is much appreciated.

We've identified a house (3/2 SFR) with what appears to be a very stable tenant who would remain if given the option. Given the stability, distance to property (4 hours), and our first time at this, we plan to:

-Keep the tenant in as a LTR until the year’s end, removing the property from market no later than 12/31/25. Benefits: easier on us, and guaranteed income. Question: I believe I can opt out of bonus depreciation in 2025? Am I correct in thinking that I am required to file an IRS election to opt out of bonus depreciation in 2025?

-Sometime early in 2026, convert the property to a STR, with my wife and I materially participating for management. We will avoid any personal use days. For 2026 tax year, I would perform a cost segregation study and do bonus depreciation to allow rental loss deduction against my W2 income. Benefits: huge tax break if the 100% bonus depreciation is back, and get into the STR in front of the summer high rental season. Question: I understand that the depreciation durations are different for LTR (considered residential, 27.5) and STR (commercial, 39). What difficulties will this create moving from a LTR depreciation to a STR depreciation? Making the tax situation more complex isn't appealing.

-Is there anything else we should be considering, or maybe a different way to approach this? We could let the tenant go to put it on the market as an STR in 2025, but it would be a lot of work. I know we would miss high STR rental season, but I believe we could meet the material participation requirements. If the bonus depreciation isn't reauthorized for 100% in 2025, but it is for 2026, I would opt out of bonus deprecation until 2026 (unless I can't?).

General questions:

-While the property is an LTR in 2025, I will have losses, I believe termed PALs. I understand that these losses will continue carrying forward. We don’t plan to sell the property and I’m not foreseeing any other passive income. What other ways could I make use of these PALs?

-In late 2025, if the property is vacant (after LTR use ends, but before starting 2026 year), can my wife and I use the property without diminishing tax breaks, or causing other issues?

-In early 2026 while prepping the vacant property as an STR rental, what is the correct way to use the property without diminishing our 2026 STR tax benefits? If we stay at the property and do substantial work each day (I believe that is the term), does that prevent any personal use or vacation use in IRS eyes? This has been an area that I've struggled to understand about what is ok and not ok, and I really want to prevent personal use due to the significant tax implications in 2026.

I’ve never used a CPA, but will once we get started. Right now, I just need to know if our overall plan is sound. Any takers? Appreciated in advance.

Justin

(property is location in Mendocino County)