Mix Use Duplex as STR and LTR for Tax Filing

[Shyd Coloma]

Looking for anyone who has a duplex that is mix of STR & LTR and claim material participation for the STR side for the "STR loophole" to offset active W2 income? I recently had an email exchange with my CPA regarding my investment property that is a duplex where one side is operated as a LTR and the other side is a STR. 2022 is my first year with this investment property.

The average length of stay for the STR side for the year came out to 5.5 days so it does meet the STR criteria. We meet the material participation criteria as well since we self-manage the unit and set it all up in person ourselves. We have tracked and logged more than 500 hours and materially participated more hours on the property than the rest of our team (cleaner, handymen, etc.) and would like to try and exercise the "STR Loophole" to offset W2 income for 2022. My CPA is telling me that because this is a duplex, it might be "aggressive" to file half of the property as a STR and the other half as a LTR and I could be targeted for an audit since this is a gray area of the tax code. They haven't had clients with this type of situation arise yet. All their client's properties are clear LTR or STRs and not a mix. Recommendation from my CPA is that we file the whole duplex as a LTR, but then we obviously couldn't offset my W2 income if we went that route. We aren't able to claim REPS at this time. Looking to see if others have encountered this situation before.

I am reaching out to 2 other CPAs for a consultation as well, but looking for some anecdotal data from others to see if they have run into this issue in the past.