STR Bonus Depreciation Rules

[Karen Kushner]

Hi All,

Looking to buy a STR at the Jersey Shore this year, meet the material participation requirement/100 hrs, and take bonus depreciation on the unit for 2024. I have a few questions regarding this strategy:

1. What is the minimum number of stays/time needed to satisfy the STR requirement? If we purchase in the fall, we may only be able to get 1 or 2 weeks rented. I know the average length of stay needs to be 7 days or less.

2. Can we qualify for a full year of depreciation if we only own the property for part of the year?

3. 60% Bonus Depreciation in 2024: Does this apply to the building only?

4. If bonus depreciation is taken in 2024, how is the remaining 40% depreciated? Is this over an expedited timeline?

5. Is a cost segregation study even necessary to get bonus depreciation?

Looking ahead to 2025, our strategy would be to buy a second STR. My plan would be to actively manage the new property and hire a property management company to manage the first property. Essentially we would actively manage each new property for the first year in service, take bonus depreciation on it, then 1031 exchange for another.

1. Is this strategy allowed? Is there anything prohibiting me from doing this tax-wise?

Thanks so much!

[Michael Plaks]

@Karen Kushner

In your two messages, you're basically asking to learn several highly complicated topics and then figure out how they apply to your specific situation. Sorry, this is impossible to accomplish. It would take several hours of general explanation and then another couple of hours of custom analysis by an experienced accountant.

I can only give you a few starting pointers, but each one really has a LOT more to it than a short sentence.

1. Minimum 2 stays.

2. Bonus depreciation does not change whether you operate a property for the entire year of just 2 weeks. Regular depreciation gets prorated.

3. Bonus depreciation does not apply to buildings at all. It applies to certain components only, such as carpets, appliance, fences etc.

4. The other 40% is depreciated over whatever the official "life" of the corresponding property is. 5 years for cabinets, 15 years for driveways, and so on.

5. It's necessary to determine what is eligible into bonus depreciation.

6. Your strategy of 1031 after one year is possible but it will backfire on you. It does not work the way you think it does.

7. (from your other post). STR and LTR losses have unrelated requirements to be deductible against W2. STRs mostly needs material participation, while LTRs mostly need REP status.

Again, all of the above is very complicated, and if you believe that you figured it out after reading responses from two tax pros on this thread, you're mistaken.

More reading on these topics:
https://www.biggerpockets.com/forums/51/topics/1121063-expla...
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...
https://www.biggerpockets.com/forums/51/topics/1075919-five-...
https://www.biggerpockets.com/forums/51/topics/1136752-expla...