STR tax loophole with a 2nd home loan

[Pretty Khare]

If I buy a vacation home using a 2nd home loan and rent it as an AirBNB when I am not using it, can I still do a cost segregation study to accelerate depreciation and offset losses against my W2 income if I follow the rules of STR tax loophole (I.e., the average stay in the house is less than 7 days, I manage the AirBnB myself, and spend 100 hours or more a year and more time than any other person/entity on managing my AirBnB business)?

My CPA is saying I cannot offset accelerated depreciation losses against my w2 income as I have a 2nd home loan, but I heard in Brandon Hall’s podcast that IRS has a different definition of a 2nd home than what is used for mortgage.

PS: I think I need a better CPA. Any recommendations?

[Greg O'Brien]

@Pretty Khare this is a nuanced issue. First, unfortunately many CPAs are not interpreting the Regs to IRC 469 properly and some are even defaulting STR to Sch C and SE tax without regard. We see new clients with 2-3 yrs of improper treatment all the time. Its seems many pros are burying their heads to the regulations or not thoroughly understanding how to interpret STRs in the tax code (the transient rental rules etc).

The IRS CCA clarified the above issue (SE tax) in January. I’d encourage anyone who has a CPA that does not understand how different types of STRs interplay with IRC469 and IRC 1402 to start with the IRS legal memo.

Next, regarding W2 offset, the answer like everything in tax is it depends. It 100% is possible to limits but you need to plan around the Excess Biz Loss rules from TCJA.