Short term rental loophole then long term rental in the future

[Brett Dudley]

Hello, 

just closed on a new house. If i were to airbnb it out for the last few weeks of December, would i be able to use the short term rental loophole to do bonus depreciation on the property (with a cost seg of course)? Would i be able to do this if later on I decided to use the house as a long term or mid term rental ?

[Sean O'Keefe]

Quote from @Brett Dudley:

Hello, 

just closed on a new house. If i were to airbnb it out for the last few weeks of December, would i be able to use the short term rental loophole to do bonus depreciation on the property (with a cost seg of course)? Would i be able to do this if later on I decided to use the house as a long term or mid term rental ?

@Brett Dudley Since we are so close to the end of the tax year (Jan - Dec) one of your biggest challenges will be meeting the material participation requirements. This is one of a few requirements to qualify for what you are referring to as the "short term rental loophole".

To be considered as materially participating in an activity, an individual must, under Sec. 469(h)(1), have "regular, continuous, and substantial" involvement in the activity. This isn't the same thing as REPS (but is required for REPS).

These tests determine whether you qualify based on your involvement in your rental property(ies). You need to meet one of them to be considered materially participating.

1. Spend more than 500 hours on your rental business
2. Do substantially everything for the rental business
3. Spend more than 100 hours on the activity and no one other individual spends more time than you do
4. Significant participation activity for more than 100 hours, and your combined activity in all significant participation activities exceeds 500 hours
5. Participating in the business for five of the 10 previous taxable years
6. Personal service activity (non income-producing) for three of the previous taxable years
7. Regular, continuous, provable participation in the business for more than 100 hours

The first three are the ones the majority of real estate investors will evaluate and attempt to qualify for.
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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.