Need Tax professional - W2 employee with 1 LTR and 1 STR

Atlanta, GA · Member since 2016 · 11 posts · 7 votes

My fiance and I bought our first STR last year and rented on AirBNB/VRBO throughout the year. We are both W2 employees so we should be pretty simple.

We bought the STR as a vacation home and do go sometimes ourselves (usually non-peak season) but it is available for rent all year.

We also have one LTR with a signed lease.

Want to work with a tax pro who knows STR's/LTRs and how to best do depreciation. Want to know if a cost-seg would work for the STR.

Bonus if you are in Atlanta, but not necessary.

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Christian Block

Accountant · Redmond, WA · Member since 2023 · 32 posts · 12 votes

The first question I would ask you is how many personal days and how many rental days did you have on the STR? That will provide some clarity on your other questions.

You are considered to use the STR as a residence if your personal use is the greater of 14 days or 10% of the total days your rent it a FMV. If it is considered a residence, you will be limited by Section 280A as to what you are allowed to deduct.

It will qualify as a personal day if you or anyone else with an interest in the property uses it, or you rent it to friends/family/etc. at below FMV. If stay there while you are doing work on the property, I don't think you count that as a personal day.

There is also a special rule if you rent it for less than 15 days; you don't report any income or report any expenses.

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Christian Block
Accountant · Redmond, WA · Member since 2023 · 32 posts · 12 votes
2y
The first question I would ask you is how many personal days and how many rental days did you have on the STR? That will provide some clarity on your other questions.
You are considered to use the STR as a residence if your personal use is the greater of 14 days or 10% of the total days your rent it a FMV. If it is considered a residence, you will be limited by Section 280A as to what you are allowed to deduct.
It will qualify as a personal day if you or anyone else with an interest in the property uses it, or you rent it to friends/family/etc. at below FMV. If stay there while you are doing work on the property, I don't think you count that as a personal day.
There is also a special rule if you rent it for less than 15 days; you don't report any income or report any expenses.
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Matt Smith
OP
Atlanta, GA · Member since 2016 · 11 posts · 7 votes
2y
Thanks Christian. We are always doing work when down there, or updating, cleaning, adding value, decorations, furniture, etc.
I'd say we spent ~40 days there last year, and worked at least 35 of the 40 days. The first part was after closing, we went down there to get it prepped to list on AirBNB/VRBO so we were doing stuff each day.
As far as rental nights, we rented about 100 nights last year (no discounts anywhere) and weren't even listed on STR platforms until May. And it's a beach property so obviously it was heavy bookings over the summer, solid in the fall and very little in the winter.
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
2y
@Matt Smith - I recommend that you interview multiple tax professionals. You can find a starting list of them here, or find them under the "Build Your Team" header on the navigation bar.
Podcast Guest on Show #223
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Christian Block
Accountant · Redmond, WA · Member since 2023 · 32 posts · 12 votes
2y
Quote from @Matt Smith:

Thanks Christian. We are always doing work when down there, or updating, cleaning, adding value, decorations, furniture, etc.
I'd say we spent ~40 days there last year, and worked at least 35 of the 40 days. The first part was after closing, we went down there to get it prepped to list on AirBNB/VRBO so we were doing stuff each day.
As far as rental nights, we rented about 100 nights last year (no discounts anywhere) and weren't even listed on STR platforms until May. And it's a beach property so obviously it was heavy bookings over the summer, solid in the fall and very little in the winter.

It sounds like you are good on avoiding 280A with your personal usage.
To get the benefit of taking your STR losses against your other ordinary income (and a cost seg would help to increase the loss), I think you want to make sure your average rental period equals 7 days or less, and that you meet material participation. I think you can meet this practically three ways,
1) you spend more than 500 qualified hours a year on the activity
2) you spend more than 100 qualified hours a year and no one else spends more hours
3) you are the only one who participates in the activity.
One wrinkle; you and your fiancé might (likely?) want to split the activity since you each need to file a tax return. I think this might create an issue with meeting the material participation. Did you have a plan for this?
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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
2y
@Matt Smith Many tax professionals have the ability to do your returns all through online portals if you yourself have that capability also. You might be able to find someone through the BP website and do them that way if you don’t find someone closer to you.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
2y
If you self manage the rentals, it is possible to potentially treat this property as an active property instead of a passive property.

if that is the case, you would want to generate as much losses as you can(on paper) on the property and potentially accelerate costs if possible.
That means, furnish the house completely and potentially do a cost segregation study.

Best of luck to yo in your search.
[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
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Account Closed
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2y
Hey Matt!

I would recommend doing some research on the "short term rental loophole" and work with a real estate-focused accountant who you can grow with. A trap you can fall into is finding a great real estate accountant, but they specialize in working with larger clients and you end up paying way more then you should. For instance, we work with real estate investors big and small for tax prep and advisory and try to grow with our clients and refer them out if they are not a fit.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
2y
Quote from @Account Closed:

Quote from @Basit Siddiqi:

If you self manage the rentals, it is possible to potentially treat this property as an active property instead of a passive property.

if that is the case, you would want to generate as much losses as you can(on paper) on the property and potentially accelerate costs if possible.
That means, furnish the house completely and potentially do a cost segregation study.

Best of luck to yo in your search.
@Basit Siddiqi: I realize every thing depends but:

Re: Depreciation Only, Generally speaking, if I have an income of $300,000 as a W2

is the general idea that if I buy a long term rental at $300,000 and assume that 80% is building, I take $240,000 divided by 27.5 years & I reduce my taxable income by $8,727 ?

So now is my taxable $291,273 ? Does it really matter if I finance it through a bank or if I pay cash?

Is that generally how it works on depreciation?

If you finance it, you would potentially eligible for an interest expense deduction.
[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
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