Short Term Rental Tax Benefits

[Chris Look]

Hey everyone, we are looking for some clarification or advice on maximizing the tax benefits on a short term rental. We are in the process of purchasing our first property, just narrowing it down right now. We both have full time jobs but plan to manage it ourselves to meet the requirements for material participation for it to be a non-passive property. We would also plan to run a cost segregation study to maximize bonus depreciation in the first year. How does this work to offset both the income of the property and then our W2 income? Are there other options or tax benefits we should look at? Does it make a difference on what we are able to deduct based off of a down payment, furnishing the property, and/or any maintenance/updating to the property?

Here is an example of some numbers I have looked at. If we purchase a property for $400,000 that has a gross income the first year (4 or 5 months before year end) of $25,000, operating expenses of $10,000, mortgage and taxes of $15,000, with a W2 income of $175,000, what might that look like for taxes? Do you take all of it in year one or does/can some of it carry over to the next year if unused? How does a down payment or other costs to get it going play into all of this? I have not been able to find a good example that actually shows how to offset both the income of the property and W2 income. I plan to talk to our CPA as well but want to have a better understanding of it beforehand.

Thanks in advance for the advice!

Thanks,

Chris

[John Carbone]

Quote from @Chris Look:

Hey everyone, we are looking for some clarification or advice on maximizing the tax benefits on a short term rental. We are in the process of purchasing our first property, just narrowing it down right now. We both have full time jobs but plan to manage it ourselves to meet the requirements for material participation for it to be a non-passive property. We would also plan to run a cost segregation study to maximize bonus depreciation in the first year. How does this work to offset both the income of the property and then our W2 income? Are there other options or tax benefits we should look at? Does it make a difference on what we are able to deduct based off of a down payment, furnishing the property, and/or any maintenance/updating to the property?

Here is an example of some numbers I have looked at. If we purchase a property for $400,000 that has a gross income the first year (4 or 5 months before year end) of $25,000, operating expenses of $10,000, mortgage and taxes of $15,000, with a W2 income of $175,000, what might that look like for taxes? Do you take all of it in year one or does/can some of it carry over to the next year if unused? How does a down payment or other costs to get it going play into all of this? I have not been able to find a good example that actually shows how to offset both the income of the property and W2 income. I plan to talk to our CPA as well but want to have a better understanding of it beforehand.

Thanks in advance for the advice!

Thanks,

Chris

Ballpark will be about a 50-60k deduction  against your w-2 income with a cost segregation plus any furnishing/maintenance.

down payment: 0 tax benefit, it’s equity 

Furnishing - yes, need accountant for details

Maintenance - yes, need accountant for details 

Bonus depreciation is now 80 percent, and expenses are still as always 100 percent deductions. You do need a cpa though. 

keep in mind you also need to pay for the cost segregation and tax work.