Renting rooms in Primary Residence and using STR Loophole

[Shubham Agrawal]

Hello,

I am new to real estate investment and recently found out about offsetting W2 income using Short Term Rentals. If I buy a residential property, start living in it (let's say occupy one room) and rent the rest of the property (other rooms and maybe basement) for 30 days or less, will I still be able to offset my active income using depreciation, cost segregation and bonus depreciation?

Are people using this route often?

Thanks in advance!

[Joseph Palmiero]

You would have to allocate your expenses based on personal and rental use of the property considering both days rented and the actual space rented.

In order to deduct losses with an average stay of 30 days or less, you would have to provide substantial services.  This would be like hotel type services.  You would also have to meet one of the tests of material participation.

If you don't provide substantial services under your fact patern, you may be able to deduct up to $25k in losses if your income is less than $150k.

You could potentially deduct losses If you kept your average guest stay at seven days or less and you materially participate.

This is not a strategy for DIYers.  Consult a qualified real estate tax CPA.