STR and LTR Tax Interplay against W2

[Karen Kushner]

Hi All,

Interested in purchasing a STR this year, meet material participation rules/100 hrs, obtain cost seg and bonus depreciation. If we can swing it, we may also be able to purchase a LTR towards the end of the year. I'm wondering what the interplay is between the tax writeoffs for these properties against my husband's W2 income? Do the two rentals combine and then offset W2 income or do they remain separate?

Thanks so much!

[Kelly O'Keefe]

Hi @Karen Kushner

There are going to be a few differences. One of the ones to be considerate of is the limitations of taking losses as a W-2 earner. The max you can offset for a LTR is 25k and this is phased out based on your level of income. Because of this limit the cost segregation and bonus depreciation on a LTR may not be as beneficial without real estate professional status. In the short term rental loop hole there is no loss limitation and that has the potential to be your best option for offsetting W-2 income. The IRS also sees a difference between STR and LTR and these cannot be grouped for material participation.

I would also highlight that the 100 hour rule is also based on having more participation than anyone else. If you have cleaners or anyone else working on the property you need to make sure to show your participation is higher than there's