Material Participation on STR purchased late in year

[Salah Dajani]

Most of us are aware of the potential tax benefits with owning a STR and some of the rules regarding material participation. I was wondering if you purchase an STR in December and perform a cost segregation study and continue renting it out and managing it, will this count as material participation and allow you to utilize the bonus depreciation?

Or will the prior owner be considered as someone who spent more time working on the property and therefore make you ineligible for material participation? Let's discuss!

[Aaron Zimmerman]

There are multiple material participation tests that you can use. 
(1) 500 hours - unlikely you’d hit this.

(2) 100 hours and more time than any other single individual. 

(3) substantially all the activity is done by you (this is not as cut and dry but generally 70% of all time spent is a good starting point). 

To deduct your short term rental losses against active income, you need to materially participate, have an average customer use period of 7 days or less, and not use your short term rental for personal use in excess of 14 days or 10% of fair rental days. 

The question is: can you materially participate? And can you rent it out for at least two times before end of year? 

The answer should be yes to both of these. At that point, you can engage a cost seg company. 

All this should be done with close planning with your cpa.