Tax Write-offs pre-ownership

[Mason Haley]

Hello, I am currently in the process of finding a short term rental to purchase and wondering how to best take advantage of what I am doing from a tax implication. I am in a high tax bracket so the implications could be very beneficial. For example, we are traveling to the city we are looking and going to be staying a couple days specifically to look for STRs. Is this all a deductible expense as long as it is tracked, even though I do not currently own any properties or have a LLC?

Likewise, I am a member of a local REIA, bigger pockets pro member, etc. are those write-offs I can take advantage of at this time? If so how or how do I get to the point that these are deductible expenses?

Thank you for your help! 

[Jonathan Schwartz]

Hi Mason,

Unless you open a LLC or have a property, none of those expenses are considered deductible as you can't write them off against W2 income.

However, once you either open a LLC or acquire a property, you could then write those expenses off as 'startup expenses' if you do an LLC, or just regular expenses if you own the property in your personal name.

Keep in mind however, even with a LLC or owning the property personally, unless you become a full-time real estate professional you are limited to what you can deduct. While your property will most likely have a paper loss in at least year one (factoring in actual expenses, startup expenses, and depreciation) - you may not be able to deduct the loss. They will be held for the future if you either sell a property and realize a gain, or have a profitable year thanks to rent.

Here are the limits:

1. The passive loss allowance which allows taxpayers with a Modified Adjusted Gross Income (MAGI) of less than $100,000 to deduct up to $25,000 of passive losses against their other income. This $25,000 deduction is phased out $1 for every $2 that MAGI increases above $100,000. This means that once a taxpayer’s MAGI exceeds $150,000, the passive loss allowance will have been completely phased out.

Hope this helps!

Jonathan