Short Term Rental Bonus Depreciation for high income earner

[Kaitlin Neary]

Hello all! We are relatively new at real estate investing, and are looking for ways to still secure properties in 2021 and benefit from a tax standpoint. We do not currently have REPS, therefore had heard a good way to still claim bonus depreciation on a property (and thus help with taxes) is through a short term rental with 100 hrs of material participation and more than anyone else. We heard from a CPA that this rule only applies to those with income less than $250,000/year, and since my W-2 income is above this, we could not capitalize on an STR in this manner. This was the first we had heard of this income cap for claiming bonus depreciation on an STR, so were wondering if anyone else has heard of this? Any high income earners >$250,000 currently capitalizing on STR's in this manner? Any advice and specific articles or resources would be appreciated. Our extensive google has turned up nothing…. :) Thanks so much!

[Natalie Kolodij]

There is literally no $250k rule, no idea what that CPA was talking about. 

There is also no cap on using bonus depreciation- there is a cap on utilizing passive losses, which is $150k. However...often short term rentals are non passive. and  MANY CPA's get this wrong. 

Here's the correct answer: 

Short term rentals with an average stay of more than 7 days = passive income 

Short term rentals with an average stay of less than 7 days AND you meet one of the IRS tests (there's 7) of material participation = non passive income 

Short term rentals with an average stay of less than 7 days AND you provide substantial services = non passive AND subject to self employment tax 

So IF you materially participate in the rental and the average guest stay is <7 days it's non passive income, which makes losses not subject to the passive loss income limits. So you can utilize bonus depreciation to create deductbile losses.