Converting STR to LTR complications after cost seg

[Tyler Neison]

Hello, 

While I am in the process of finding a new CPA thought I would pose this question here and hope someone has been in the situation in the past. 

I am planning to buy another SFH property this year to run as a STR. I plan to meet all the criteria necessary to be able to classify the income/expenses from this property as active. Will do a cost seg and take advantage of all the paper losses that I can in this first year.

What happens if at year 2 or 3 I decide I want to instead run it as a LTR property? In year 2, assuming it's now a LTR property, everything would go back to being passive income and loss only being able to offset itself? And any carryforward loss from Y1 could only offset future passive income?

Hopefully that's not too confusing and it's easy to understand my question...

Thanks!