Tax Efficient Vacation Rental Question

[Nate Morris]

There is a turnkey vacation rental in Hawaii I am looking to buy.  The home includes furniture and a passenger vehicle. The deal may require the vehicle+furnature be transacted outside escrow. 

Do I maximize the value of the furniture+vehicle and minimize the house price or vice versa. 

I am thinking in terms of maximizing my taxable writeoffs. 

[Alan Rohrer]

@Nate Morris

It would make sense that the deal may need to be included in a separate sale.

Generally when purchasing property, you want to weight more of the value into items with lower depreciable lives. So if you are purchasing a house with land, you typically would try to allocate more of the price to the house, as you don't take depreciation on land.

If your goal is maximum taxable writeoffs and you have a number of other properties, you may want to look into cost segregation (but it won't be worth it if you only have this property).

Keep in mind that when you sell the property, you'll have to pay tax on the depreciation (usually a 25% rate).

Be sure to chat with a CPA about allocating the purchase price in a sale, as you need to follow one of the multiple acceptable ways to allocate.

Also, depending on how the rest of your portfolio looks and your timetable for holding, being less aggressive in allocating the purchase to high depreciation items may work out better. 

Let me know if you have any more questions!