CPA causing confusion on STR rules - HELP!

[Chelsea Schaefer]

Looking for advice - purchased first STR 2023 and we qualify for active income based on rule 3 of the material participation test. Current CPA says we can't take losses off of W-2 because W-2 income is greater than 240k. Is there a W-2 limit or is our CPA not knowledgeable on STR tax???

[Randall Alan]

@Chelsea Schaefer

I'm not an expert...just another investor... I also don't know all your circumstances ... but I provide the source for you to dig into it deeper down below.  

The current document you probably want to look at is this:

https://www.irs.gov/publications/p925#en_US_2023_publink1000...

Generally, the passive activity loss for the tax year isn’t allowed. However, there is a special allowance under which some or all of your passive activity loss may be allowed. See , Special $25,000 Allowance.

Phaseout rule.

The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.

There are several examples with different limitations in this publication - so I would read it to make sure which one applies to your situation..

My guess is that your CPA is on point... but will let you be the judge.

All the best!

Randy

[Katie Ripp]

It sounds like they are not knowledgeable in STR tax. If the property was rented less than 7 days on average during the year, and you materially participated in the activity, those losses would be nonpassive. No W-2 limits.

There is an excess business loss limitation, but that's $578,000 for married filing joint taxpayers. Basically you could only recognize up to 578K of business losses again other w-2, int/div income. Maybe that's what they are referring to and have the number wrong?

[Alan Lacey]

This cpa/real estate podcast has quite a bit of info on all the STR tax components

https://podcasts.apple.com/us/podcast/tax-smart-real-estate-...

[Zachary Jensen]

There is no income limit on STR loophole losses, I know what he's talking about but that is completely unrelated to this. I would strongly recommend you get linked up with an accountant who is more real estate focused in order to avoid any further costly mistakes.

[Michael Plaks]

@Chelsea Schaefer

Either you omitted some important pieces of the picture or (more likely) this CPA is not a real estate expert.

Read this: 
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

[Tanner Bellamy]

I am agreeing with the tax professionals that have already responded. Seems like your current guy is not knowledgable on the rule. But like most of the time, I cannot be sure without knowing all facts and circumstances.