Tax Suggestions for STR Income on W2 Income

[David Crothers]

Hi all,

I've been reading posts on BP for some time now and I'm hoping the community might be able to provide some suggestions. 

I'm in a bit of a tricky situation, my household annual combined joint income between my wife and I is $250k and ~$40k in STR between two properties. We purchased the second property this year for $225k. Our other STR is above our garage. Both properties are busy and I manage all the cleaning, up keep, maintenance, etc. I would qualify as materially participating.

Now, because annual income is over $150k our deductions are phased out on schedule E. Maxing out 401k's don't help as we're already doing this. 

Would it be advantageous to start a property management company and charge a management to the properties? Charge for maintenance, mowing, upkeep and renovations?

Does a cost seg make sense for a property valued at $225k?

Any suggestions on how to structure my situation and minimize tax liability? We've paid $15k-$20k in taxes each year since we started our STR which is about half of what we take in for income. I don't mind paying taxes but there's still a lot of expenses that go into these rentals monthly.

I'm in the process of trying to find an experienced CPA to help me with this but I'm located in Vermont and it's been impossible to find an available CPA.

Any advice would be greatly appreciated. Thank you!

[Michael Plaks]

@David Crothers

You're trying to overcomplicate your situation. If you materially participate in your STRs, and you probably do, based on your brief description -  the $150k limit does not apply. Read this one: https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

As far as your struggles finding a CPA, two reasons. One is that you're probably looking locally, which is totally unnecessary. All of us real estate accountants work remotely and nationwide. The second is that you picked a wrong time to be looking. Look in November. Here is why: https://www.biggerpockets.com/forums/51/topics/1057644-augus...