Accelerated bonus depreciation for short term rental

[Vikranth Biradar]

Hi all, 
I am looking for some expertise from STR landlords or accountants. I currently have W-2 earnings and realize that I can buy a STR, spend 100 hours fixing it up and staging it, and perhaps manage to get a few guests before the end of the year. Then I could accelerate the bonus depreciation (at 60% for 2024).

I am trying to figure out how much of the property value can be used for bonus depreciation. 

Purchase Price - $100,000 (land - 20%, building - 80%) 
So, the building value is $80,000. 
Can I claim the deduction of $80,000 * 0.60 = $42,000 against my w2 income in the first year? 

[Simon Lee]

Some already good advice in this thread...

I'll try and add a few more tidbits.

It looks like you are going for the material participation test where you do 100 hours and no single individual is going to exceed that.  In the case of an audit, not only do you have to prove that you did at least 100 hours but you also need proof from your vendors that they did not do more than you.  One good way to do that is to purchase towards the end of the year and put the property into service.  That way, you will likely already have hit your 100 hours of material participation, but your cleaners, for example, would not have exceeded you since you would have only had a few bookings before the end of the year.

Also, another good one, is that material participation does not count until you are in contract on a property.  

I'll echo @Alyson Gordon's that the bonus depreciable items (less than 20 years depreciation schedule) will most likely be 15 to 20% of the 80K.  You multiply that with your tax rate to see your tax savings.  

You can target larger homes with cheaper land to get a bigger cost seg.  For example, I have a cabin near the smokies that I purchased for about 1.1M, the land cost was only 50K, but had a lot of bathrooms/fixtures, 2 kitchens, window coverings, etc., and my cost seg firm was able to hit 30%, so I got to write off about ~300K against my W2.

There will be depreciation recapture when you sell, but it is a lower tax rate (25%) than what you are at currently, I assume.  You can always 1031 exchange to kick the can down the road.

Also, bonus depreciation is a tax strategy.  It is not free money.  You are borrowing against your future depreciation (in year 2 onwards), as future depreciation will be less since you took a huge chunk in year 1.