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Updated about 1 month ago,
STR Loophole possible buying in Dec 2024?
Hello
I'm a high W2 earner and have been looking for a STR and finally went into contract but can't close until mid-end of December 2024. Would I be eligible to take the bonus depreciation on my 2024 taxes? If I can get 2 different renters in before Jan 1 2025-is still possible by obviously getting a cost seg.
Also, would all of the house hunting, going out to see properties, research (calling city for license/map searching) and buying the furnishings count toward the 1 of 7 qualifications IRS demands in addition to the 2 Airbnb bookings-preparing home, cleaning, set up etc?
Or would it be better to just close in 2025-knowing the bonus will be less? Is it still 80% for 2024? I’ve read conflicting numbers -either 80% or 60%.
I really appreciate anyone’s help :)
Also if anyone knows an excellent tax strategist/CPA/ STR experience in Las Vegas-please drop a name-that would be so helpful. Feeling overwhelmed and nervous about an audit!!!
Thank you kindly.
Great questions for a CPA that knows more details of your specific situation. I have a few CPA suggestions for you. They are in the Reno, NV area and experienced with real estate investors. I'll send you a DM.
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When you said Las Vegas did you mean North Las Vegas or some other suburb? Or are you planning to rent out rooms? I’m pretty sure In Las Vegas proper you’ll need a license (which you probably won’t get by year end.) AND you’ll need to be living in the home as your primary residence WHILE it’s rented out.
Found the rules: 3 bedroom or less, 600 feet from other strs, 2500 feet from hotels. So you must buy 3 bedroom or less and you can only rent out 2 of them.
https://files.lasvegasnevada.gov/business-licensing/Short-Te...
Quote from @Bill B.:
When you said Las Vegas did you mean North Las Vegas or some other suburb? Or are you planning to rent out rooms? I’m pretty sure In Las Vegas proper you’ll need a license (which you probably won’t get by year end.) AND you’ll need to be living in the home as your primary residence WHILE it’s rented out.
Found the rules: 3 bedroom or less, 600 feet from other strs, 2500 feet from hotels. So you must buy 3 bedroom or less and you can only rent out 2 of them.
https://files.lasvegasnevada.gov/business-licensing/Short-Te...
I have made friends with City of LV and my property meets all requirements and is in a “ clear” zone on the map. It is extremely difficult to find one in the clear area.
There are plenty surrounding this home but it will take awhile to take the non licensed down.
Also if you are an investor looking in Vegas-be very cautious-plenty are selling as "functional STR"- leading ppl to believe that the license can be transferred-IT CANNOT. One seller was indeed making 90k/year in income however-they will never get a true license.
So there are distinct rules for North Vegas, City of LV, Clark County and Henderson.
No homes for sale in Henderson either-there you can have up to 5 homes per person, no bedroom limit,no need to occupy. Lady at Henderson said “good luck finding one” LOL
Thank you for your response 😊
Quote from @Bradley Buxton:
Great questions for a CPA that knows more details of your specific situation. I have a few CPA suggestions for you. They are in the Reno, NV area and experienced with real estate investors. I'll send you a DM.
Thank you 😊🙏🏼
Also-since I have already invested hours in research-can this count toward my 100 hours? Likely I’m sure it’s not until the home is placed “in service”, however there is cumbersome paper work plus an inspection from city of LV. Would any hours count after purchase? Thanks everyone!
Quote from @Heidi Fischer:
Hello
I'm a high W2 earner and have been looking for a STR and finally went into contract but can't close until mid-end of December 2024. Would I be eligible to take the bonus depreciation on my 2024 taxes? If I can get 2 different renters in before Jan 1 2025-is still possible by obviously getting a cost seg.
Also, would all of the house hunting, going out to see properties, research (lcalling city for license/map searching) and buying the furnishings count toward the 1 of 7 qualifications IRS demands in addition to the 2 Airbnb bookings-preparing home, cleaning, set up etc?
Or would it be better to just close in 2025-knowing the bonus will be less? Is it still 80% for 2024? I’ve read conflicting numbers -either 80% or 60%.
I really appreciate anyone’s help :)
Also if anyone knows an excellent tax strategist/CPA/ STR experience in Las Vegas-please drop a name-that would be so helpful. Feeling overwhelmed and nervous about an audit!!!
Thank you kindly.
2024 bonus depreciation is 60% and goes down to 40% in 2025. While it's not impossible to close in mid December and still meet all requirements of the STR loophole, it will be extremely difficult due to the nature of hitting 150 hours, having it rented for 15 days or greater and having the avg stay be no greater than 7 days and not a decimal more. I am not familiar with Las Vegas rules but most platforms won't let you apply for a permit unless you are on the title of the property, then you will need to furnish the property after closing unless you are purchasing a property that comes furnished. You mentioned closing mid to end of Dec, you would have to close on the 14th or 15th, furnish in 1 day, have it listed and booked 5rough Dec 31st. AND have provided the 150 hrs of material participation and not have had any other person perform longer work hours than you. Once again not impossible, but very VERY close to impossible. Sorry if this isn't the information you were wanting but get with your cpa and they'll advise you on the same. Smarter strategy would be to secure the property and start in 2025. Yes it'll come at a 20% less on the bonus depreciation but it's better than stressing yourself out trying to meet all requirement in 2024 just to be disappointed and have to do it in 2025 anyway. Hope this helps a and best of luck
Quote from @Mike Hansen:
Quote from @Heidi Fischer:
Hello
I'm a high W2 earner and have been looking for a STR and finally went into contract but can't close until mid-end of December 2024. Would I be eligible to take the bonus depreciation on my 2024 taxes? If I can get 2 different renters in before Jan 1 2025-is still possible by obviously getting a cost seg.
Also, would all of the house hunting, going out to see properties, research (lcalling city for license/map searching) and buying the furnishings count toward the 1 of 7 qualifications IRS demands in addition to the 2 Airbnb bookings-preparing home, cleaning, set up etc?
Or would it be better to just close in 2025-knowing the bonus will be less? Is it still 80% for 2024? I’ve read conflicting numbers -either 80% or 60%.
I really appreciate anyone’s help :)
Also if anyone knows an excellent tax strategist/CPA/ STR experience in Las Vegas-please drop a name-that would be so helpful. Feeling overwhelmed and nervous about an audit!!!
Thank you kindly.
2024 bonus depreciation is 60% and goes down to 40% in 2025. While it's not impossible to close in mid December and still meet all requirements of the STR loophole, it will be extremely difficult due to the nature of hitting 150 hours, having it rented for 15 days or greater and having the avg stay be no greater than 7 days and not a decimal more. I am not familiar with Las Vegas rules but most platforms won't let you apply for a permit unless you are on the title of the property, then you will need to furnish the property after closing unless you are purchasing a property that comes furnished. You mentioned closing mid to end of Dec, you would have to close on the 14th or 15th, furnish in 1 day, have it listed and booked 5rough Dec 31st. AND have provided the 150 hrs of material participation and not have had any other person perform longer work hours than you. Once again not impossible, but very VERY close to impossible. Sorry if this isn't the information you were wanting but get with your cpa and they'll advise you on the same. Smarter strategy would be to secure the property and start in 2025. Yes it'll come at a 20% less on the bonus depreciation but it's better than stressing yourself out trying to meet all requirement in 2024 just to be disappointed and have to do it in 2025 anyway. Hope this helps a and best of luck
Totally agree-it may be MORE THAN super tight. I have to close, apply for a conditional use verification, get inspection ( requiring wired smoke detectors, other safety features) and get a business license. Likely this will take 30 days. But is it possible in that process to account for the 100hrs (I thought it was 100hrs or is it 150 hrs?) plus have 2 bookings of 2 days each. I was thinking for “promotional purposes “ to have Airbnb influencers stay to do some videos. But honestly, there are multiple (mostly all) operating illegally. Would the IRS know if I rented it out before getting a license-I’m thinking no.
Is it for sure that none of the prep work leading up to purchase plus prep would not count toward 100-150hrs. Lol I feel even this post is part of the research ! Thank you kindly -if the 40% works out I’m ok with that too!
Best wishes to all!
It's possible, but it would be extremely difficult to apply the STR strategy this year. You would need to get at least a couple of stays under 7 days before year end. To meet material participation, you need to log at least 100 hours of work and do more than anyone else involved. The "substantially all" material participation test is another option but it's more ambiguous and difficult to prove. You can start counting your time from the moment you're under contract. Tasks like furnishing, cleaning, and setup count, but education & research hours are generally disallowed.
Bonus depreciation is 60% for 2024 and scheduled to drop to 40% in 2025 unless legislation changes.
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I agree with the other posts that recommend waiting until next year. You're very close to the end of the year and you don't have all of your ducks in a row.
Focus on finding a real estate tax strategist who specializes real estate taxation, cost segregations, tax planning and financial planning.
Bigger Pockets is a great place to find a real estate tax strategist.
You may want to consider working with your accountant remotely to expand your options.
I would also recommend looking for a accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.
Good luck.
- Bill Hampton
- 404-482-3170
Quote from @Heidi Fischer:
Also-since I have already invested hours in research-can this count toward my 100 hours? Likely I’m sure it’s not until the home is placed “in service”, however there is cumbersome paper work plus an inspection from city of LV. Would any hours count after purchase? Thanks everyone!
No research doesn't count. It's only the actual operations of the property.
- Preet Sekhon
Just wanted to flag something potentially impactful for real estate investors: it looks like 100% bonus depreciation might be making a comeback next year. As many of you know, this could significantly change the investment landscape by allowing immediate expensing of eligible property costs.
Of course, the devil is in the details. We're waiting to see exactly how this reinstatement shakes out in terms of implementation and any potential limitations.
My advice? Hold tight for now and let's see what the final legislation looks like before making any big moves.
Any additional questions, feel free to reach out.
- Preet Sekhon
Quote from @Preet Sekhon:
Just wanted to flag something potentially impactful for real estate investors: it looks like 100% bonus depreciation might be making a comeback next year. As many of you know, this could significantly change the investment landscape by allowing immediate expensing of eligible property costs.
Of course, the devil is in the details. We're waiting to see exactly how this reinstatement shakes out in terms of implementation and any potential limitations.
My advice? Hold tight for now and let's see what the final legislation looks like before making any big moves.
Any additional questions, feel free to reach out.
Thanks for you comment-Would you not buy? or not put in service? Wait to take the bonus depreciation? From my research, it seems the first year that it is put in service is when you can bonus it. I really want to finalize the purchase at least -Because the property for legal STR is very hard to come by here in City of Las Vegas. There are not many legal locations available on our map.
Im looking to add at least 1 STR per year so maybe property #2 I can do at 100%.
Most important is for me to start the “business”.
Funny because I’m a physician trying to get to retirement with STRs-not sure if it’s going to pan out but being in a city with lots of tourists is helpful. I need about 10 homes total to make up my salary in W2. Mostly all our STRs here do 60-100k/year each home. Any advice on this plan from community is appreciated.
To qualify for the STR Loophole, you need the following:
1. Average rental period of 7 days or less. As you correctly mentioned, you’ll need at least two stays.
2. For the material participation test, the easiest way to get it is Via the 100 hours and worked more than anyone else. If you can do that, then you can qualify.
3. Don’t use it between Now and year end.
Practically speaking, it’s going to be quite challenging unless you spend significant time. If I was you, I would just make sure you do everything in your power to qualify in 2025 because it’s going to be quite challenging.
Quote from @Aaron Zimmerman:
To qualify for the STR Loophole, you need the following:
1. Average rental period of 7 days or less. As you correctly mentioned, you’ll need at least two stays.
2. For the material participation test, the easiest way to get it is Via the 100 hours and worked more than anyone else. If you can do that, then you can qualify.
3. Don’t use it between Now and year end.
Practically speaking, it’s going to be quite challenging unless you spend significant time. If I was you, I would just make sure you do everything in your power to qualify in 2025 because it’s going to be quite challenging.
Another question-can someone buy 2 or more STR and still get the bonus depreciation on each property? Or is it limited to 1 property per individual/LLC per year?
thank you !!
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#1 Tax, SDIRAs & Cost Segregation Contributor
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I just answered your question in great detail in a separate long post:
https://www.biggerpockets.com/forums/51/topics/1220969-expla...
Quote from @Michael Plaks:
I just answered your question in great detail in a separate long post:
https://www.biggerpockets.com/forums/51/topics/1220969-expla...
Quote from @Heidi Fischer:
Quote from @Aaron Zimmerman:
To qualify for the STR Loophole, you need the following:
1. Average rental period of 7 days or less. As you correctly mentioned, you’ll need at least two stays.
2. For the material participation test, the easiest way to get it is Via the 100 hours and worked more than anyone else. If you can do that, then you can qualify.
3. Don’t use it between Now and year end.
Practically speaking, it’s going to be quite challenging unless you spend significant time. If I was you, I would just make sure you do everything in your power to qualify in 2025 because it’s going to be quite challenging.
Another question-can someone buy 2 or more STR and still get the bonus depreciation on each property? Or is it limited to 1 property per individual/LLC per year?
thank you !!
Yes - you can do both in the same year. And you can group the two with -9 election. Same rules of course.
Quote from @Aaron Zimmerman:
Quote from @Heidi Fischer:
Quote from @Aaron Zimmerman:
To qualify for the STR Loophole, you need the following:
1. Average rental period of 7 days or less. As you correctly mentioned, you’ll need at least two stays.
2. For the material participation test, the easiest way to get it is Via the 100 hours and worked more than anyone else. If you can do that, then you can qualify.
3. Don’t use it between Now and year end.
Practically speaking, it’s going to be quite challenging unless you spend significant time. If I was you, I would just make sure you do everything in your power to qualify in 2025 because it’s going to be quite challenging.
Another question-can someone buy 2 or more STR and still get the bonus depreciation on each property? Or is it limited to 1 property per individual/LLC per year?
thank you !!
Yes - you can do both in the same year. And you can group the two with -9 election. Same rules of course.
If you close by December 2024, you’ll be eligible to take bonus depreciation on your 2024 taxes, but it’s capped at 60%. In 2025, it drops to 40%. Regarding your second question, are you asking if those activities help meet the IRS material participation tests or qualify you as a real estate professional?
Quote from @Jason Malabute:
If you close by December 2024, you’ll be eligible to take bonus depreciation on your 2024 taxes, but it’s capped at 60%. In 2025, it drops to 40%. Regarding your second question, are you asking if those activities help meet the IRS material participation tests or qualify you as a real estate professional?
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@Heidi Fischer To claim 2024 bonus depreciation (60%) for your STR, the property must be placed in service (ready and available for rent) by December 31, 2024. This means securing at least two bookings (to get a stay of less than 7 days) and completing all setup tasks.
Activities like furnishing, cleaning, and setup can count toward material participation hours if you actively manage the property. I do suggest putting the asset in the app ASAP to lower the audit risk.
You can meet Substantially all participation tests (test no 2). Delaying the closing to 2025 would reduce the bonus depreciation rate to 40% (unless Trump changes it).
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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Here's an article with additional FAQs on cost segregation studies that you may find helpful. Feel free to reach out if you have any questions! Bonus depreciation is 60% for properties placed into service in 2024 and 40% for properties placed into service in 2025.
https://www.biggerpockets.com/forums/51/topics/1113749-cost-segregation-faq
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#3 Tax, SDIRAs & Cost Segregation Contributor
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Quote from @Heidi Fischer:
Hello
I'm a high W2 earner and have been looking for a STR and finally went into contract but can't close until mid-end of December 2024. Would I be eligible to take the bonus depreciation on my 2024 taxes? If I can get 2 different renters in before Jan 1 2025-is still possible by obviously getting a cost seg.
Also, would all of the house hunting, going out to see properties, research (calling city for license/map searching) and buying the furnishings count toward the 1 of 7 qualifications IRS demands in addition to the 2 Airbnb bookings-preparing home, cleaning, set up etc?
Or would it be better to just close in 2025-knowing the bonus will be less? Is it still 80% for 2024? I’ve read conflicting numbers -either 80% or 60%.
I really appreciate anyone’s help :)
Also if anyone knows an excellent tax strategist/CPA/ STR experience in Las Vegas-please drop a name-that would be so helpful. Feeling overwhelmed and nervous about an audit!!!
Thank you kindly.
.
.
.
*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice
Quote from @Heidi Fischer:
Hello
I'm a high W2 earner and have been looking for a STR and finally went into contract but can't close until mid-end of December 2024. Would I be eligible to take the bonus depreciation on my 2024 taxes? If I can get 2 different renters in before Jan 1 2025-is still possible by obviously getting a cost seg.
Also, would all of the house hunting, going out to see properties, research (calling city for license/map searching) and buying the furnishings count toward the 1 of 7 qualifications IRS demands in addition to the 2 Airbnb bookings-preparing home, cleaning, set up etc?
Or would it be better to just close in 2025-knowing the bonus will be less? Is it still 80% for 2024? I’ve read conflicting numbers -either 80% or 60%.
I really appreciate anyone’s help :)
Also if anyone knows an excellent tax strategist/CPA/ STR experience in Las Vegas-please drop a name-that would be so helpful. Feeling overwhelmed and nervous about an audit!!!
Thank you kindly.
@Heidi Fischer I disagree with everyone saying you cannot do it. I wouldn't let anyone tell you not to do it in 2024 unless you simply don't want to.
Yes, you can get this placed into service in 2024 and qualify for the STR loophole. Just get it rented at least twice and keep the average stay at 7 days or less for each. If that means renting it out 2x for 1 night each, then so be it.
I'd recommend doing everything yourself for 2024 to meet the material participation requirements. Yes, the work hours going towards this property count.
Happy to chat if you have questions.
- Sean Graham
