All Forum Posts by: Vikranth Biradar

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.

You wouldn’t be able to accelerate the entire $80k it would be more like 15-20% of the $80k depending on your exact property and as determined through a cost segregation study.

If you’re not going to keep the property for at least 5 years or have a specific exit strategy in mind it may not be worth it to you. 

If the property is a single family home...you may be limited overall in your ability to take losses.

I had success with STRs in San Jose some years back, but later stopped due to time constraints. I think best way to go is choose some areas of interest and verify STR restrictions. Then you may subscribe to AirDNA to understand the market data to see if it meets your expectations.

Hey @Vikranth Biradar, 

While you may have materially participated more then anyone else, you cannot claim it against your income unless you spent at least 100 hours. 

why is this? 

there are 3 material participation tests we need to pass at least one of them: 

substantially all work time spent on the property is your doing (including cleaning and repairs)

100 hours and more then anyone else( this one I think applies to you) 

500 hours (hard to substantiate for one property)

Please note for the 100 hour and more then anyone else test you need to not only keep a time log for yourself but a time log of ALL people who have participated in the property. Under audit, if you don't have the time log for you and everyone else you will not be able to claim these losses. 

Hope this helps!