Using the short-term rental loophole in an owner occupy triplex?

[Anthony Patel]

Hi everybody!

So, both my wife and I are full time W2 employees and are in the 24% tax bracket, and I came across the short-term rental loophole which sounds really amazing for taking write offs and using them to reduce your W2 taxable income, but also equally difficult to qualify for, unless you are within a short driving distance to your property.  

Has anybody been able to put this into action in an owner-occupied triplex (or duplex/quadplex for this matter)? I am currently looking at occupying one of the units, turning one of the units into a long-term rental, and the third into a short-term rental. 

If I were to manage it myself, and have an occupancy of equal to or less than 7 days on average, would I be able to take the expenses that I have incurred in fixing up the unit, furnishing it, and marketing it and write this off against my W2 income? The reason why I am unsure of this scenario is that I know the theory states that this is usually a non-owner-occupied property (someone buys a single family home close to their primary residence so that they can manage it and take advantage of the loophole in this manner). 

Secondly, if this strategy qualifies for the STR loophole, would I further be able to run a cost segregation study on the unit that I plan to STR, in order to take advantage of bonus depreciation? Or would I have to run the study on the entire building? For tax purposes, does anybody have an idea of what this would look like as I would be living in one unit, renting one-unit long term, and then short-term renting one unit to maximize cash flow and write offs against my W2.

Thanks in advance BP!

[Bonnie Griffin Kaake]

@Anthony Patel   What you are describing is a complex situation. The short answer is yes, you most likely will be able to do cost segregation on the property. First, you will have to determine the square footage to each unit in the triplex. You cannot do cost seg on the unit you live in. The long-term unit will need to be depreciated over 27.5 years and the short-term unit will get depreciated over 39 years. The only one that will qualify to be used against your W2 income is the short-term unit if you are materially participating in the management of it. Whether or not it is worth doing a cost segregation study on it or not depends primarily on your purchase price, the size of each unit and your tax rate.