How will building RV/Boat storage impact my W2 taxes
SC · Member since 2014 · 10 posts · 25 votes
How will building RV/Boat storage impact my W2 taxes
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Accountant · NH · Member since 2019 · 269 posts · 288 votes
2yQuote from @Matthew Crane:
I'll make it quick. My W2 income is >$550k/year, if I build an RV/Boat storage facility, will my storage business expenses/losses be able to reduce my W2 taxable income? Or do I have to have REPs status for this side business to affect my W2 income in any way? Also, with a new build (assuming REPs), would I be able to do a cost segregation and use advanced depreciation? Thank you all
Generally self storage is considered "Rental Income" unless there is some substantial services involved. What is the level of involvement you will have? What is the level of services that will be provided? IE is it just effectively a secured parking lot that renters can come and go as they please with minimal oversight? Or are you offering cleaning & maintenance services?
Assuming this is a passive business - meaning you are not materially participating - any cost segregation fueled losses would have no impact on your W-2 income. The losses could be used against other sources of passive income and that is it.
If it is a standard self storage model, and thus treated as rental income, then in order to get anything other than passive treatment you would needs REPS status. Assuming your $550k W-2 job is full time, that means you need to work 2081 hours (at least 50% of your time) in your rental business. Something tells me you won't be working 4,060 hours to do so - 80 hours a week year round.
If it is a more active rental model that it is not considered "rental" income, then you would need to put in at least 100 hours with that being more than anyone else (employees, contractors, management company, etc), or you would need to put in at least 500 hours.
So your "quick" question is actually fairly complicated. You should consult a tax professional to help get it sorted and set up a strategy.
6 Replies
- 2yRobert EllisBusiness MemberDeveloper · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
your business will have it's own tax return depending on how you structure it and you'll get a partner return either profit or loss and that will pass through to you typically if you are an LP. if you are GP it's a little different. you also get the depreciation of the asset as a tax write off as well as interest expense typically.
Section 8 Launch52 Reviews - 2yJason WatsonBusiness MemberCPA · Colorado Springs, CO · Member since 2024 · 98 posts · 83 votes
If you are in the storage facility business, it is likely not passive. Rather, it will be considered earned income... and if you have losses especially the first year with a bunch of start up costs and depreciation... and if your money is at risk (let's assume Yes), then this business venture can offset (or add) to your W-2 income.
This is how short-term rental loophole works. The IRS says "Hey, if you operate this like a real business then you can deduct losses." Sure, there are rules and whatnot, but that's the gist.
So... if are involved with the business from a day to day perspective, and if you have a profit motive, then this is no different than selling used copiers or being a consultant.
Speak to a qualified tax pro to help understand the rules so you know how to position your facts.
WCG CPAs & Advisors4.599 Reviews - 2yJulio GonzalezPro MemberSpecialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
@Matthew Crane Do you have a CPA that specializes in real estate taxation? Real estate has so many tax benefits and credits available, that I always tell people it's crucial to have a CPA that's extremely knowledgeable in this area. This would be an excellent question for them. I have worked with a number of great CPAs over the years and would be more than happy to provide you with recommendations if you'd like?
As far as the cost segregation study goes - yes, you can absolutely do a cost segregation study on a new build. Here's a link to an article with some FAQs on cost segregation. Feel free to reach out if you have any questions!
https://www.biggerpockets.com/forums/51/topics/1113749-cost-segregation-faq - SC · Member since 2014 · 10 posts · 25 votes2y
Quote from @Julio Gonzalez:
@Matthew Crane Do you have a CPA that specializes in real estate taxation? Real estate has so many tax benefits and credits available, that I always tell people it's crucial to have a CPA that's extremely knowledgeable in this area. This would be an excellent question for them. I have worked with a number of great CPAs over the years and would be more than happy to provide you with recommendations if you'd like?
As far as the cost segregation study goes - yes, you can absolutely do a cost segregation study on a new build. Here's a link to an article with some FAQs on cost segregation. Feel free to reach out if you have any questions!
https://www.biggerpockets.com/forums/51/topics/1113749-cost-segregation-faq
Thank you! I live in Western NY, so I'm not sure if the CPA would have to be local to me? Please provide me with some recommendations when able. - SC · Member since 2014 · 10 posts · 25 votes2y
@Julio Gonzalez Thank you! I live in Western NY, so I'm not sure if the CPA would have to be local to me? Please provide me with some recommendations when you're able.
- Accountant · NH · Member since 2019 · 269 posts · 288 votes2y
Quote from @Matthew Crane:
I'll make it quick. My W2 income is >$550k/year, if I build an RV/Boat storage facility, will my storage business expenses/losses be able to reduce my W2 taxable income? Or do I have to have REPs status for this side business to affect my W2 income in any way? Also, with a new build (assuming REPs), would I be able to do a cost segregation and use advanced depreciation? Thank you all
Generally self storage is considered "Rental Income" unless there is some substantial services involved. What is the level of involvement you will have? What is the level of services that will be provided? IE is it just effectively a secured parking lot that renters can come and go as they please with minimal oversight? Or are you offering cleaning & maintenance services?
Assuming this is a passive business - meaning you are not materially participating - any cost segregation fueled losses would have no impact on your W-2 income. The losses could be used against other sources of passive income and that is it.
If it is a standard self storage model, and thus treated as rental income, then in order to get anything other than passive treatment you would needs REPS status. Assuming your $550k W-2 job is full time, that means you need to work 2081 hours (at least 50% of your time) in your rental business. Something tells me you won't be working 4,060 hours to do so - 80 hours a week year round.
If it is a more active rental model that it is not considered "rental" income, then you would need to put in at least 100 hours with that being more than anyone else (employees, contractors, management company, etc), or you would need to put in at least 500 hours.
So your "quick" question is actually fairly complicated. You should consult a tax professional to help get it sorted and set up a strategy.
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