All Forum Posts by: Ricky A.

@Bill Hampton lists some good ideas.  If this is a bonus that's coming soon, the timing could really limit the number of moves you can realistically make between now and Dec 31st to mitigate taxes.  I'd see if the employer would let me receive part or all of the bonus in 2025 for a number of reasons:

- More time to pursue and execute tax-saving strategies

- (Possibly) more time to hold on to the $$$ before taxes are due (2026 vs 2025)

- Chance that, post-election, there is a possibility that there could be tax changes effective 2025 that could possibly help your situation.  Other than reduced bonus depreciation (if you're using that strategy), without any tax law changes, rates will be largely the same for 2025 as 2024, so you may not lose much by delaying receipt of the bonus by a month or two.  Also, if it's a one-time bonus, you may want to push only a portion to next year if that minimizes the total taxes you pay over the two years based on your expected tax brackets.

I agree with @Michael Baum.  

Personally, I wouldn't spend money on an attorney because 1) I think the covenants/restrictions can sensibly be used against STRs and 2) because the HOA potentially has deep pockets if the officers decide to fight because they can pass the cost of the fight to the home owners.

I would reach out to the officers to get their sentiments and to plead my case, and I would start building my case with the other homeowners. Central to my argument would be that making sweeping changes to the covenants themselves or changing how the covenants have been historically enforced only addresses the current problem indirectly. For example, a homeowner could potentially act in the same nuisance ways. Argue that they, instead, confront the actual problem directly and address the nuisance issue itself. At the same time, I would reach out to that STR owner to try to get him to fix the nuisance issue.

That said, even if you are successful in staving off the issue for now, it could come back at any time based on the current board members or on wide community support for getting rid of STRs.

You could try to gather support for changing the covenants in your favor, but my gut is that that will be hard to do.  Even people who don't mind STRs may not be willing to specifically vote to enshrine them....depends on just how charismatic you can be!

Whether to consider selling or converting to LTR is really up to you.  If this is your dream retirement place, perhaps you use the LTR to simply subsidize your purchase even if it's not fully cash-flow positive.  You'll have to run those numbers to see if it makes sense.

@Brody Veilleux, to say "cash flow is tax free" is, at best, grossly misleading and, at worst, flat out wrong.

What is true is 1) taxes are based on net income and 2) cash flow does not equal net income.  Therefore, you could say something like "taxes aren't based on your cash flow," but if I were making such as statement, it would be more like "taxes aren't DIRECTLY based on your cash flow" because that better captures the spirit.

You have multiple sets of numbers: 1) [actual] cash flow, 2) net income, and since you mentioned running numbers 3) pro forma numbers (i.e., projected/estimated cash flow).  All three are different.

PRO FORMA vs ACTUAL CASH FLOW: In your pro forma, you may have *allowances* for things like vacancy and CapEx. These are great for setting expectations and as management tools (especially, if you actually set those amounts aside), but they aren't ACTUAL cashflows (even if you do set them aside). They aren't actual incurred expenses and are not deductible.

CASH FLOW vs NET INCOME:  There are three main sources of differences between your actual cash flow and your net income.  1) Mortgage Payments - Only the interest expense (and maybe mortgage insurance) is an expense and deductible.  Principal paydown is not an expense...it's just paying the cost of the asset over time.  Also, escrow payments aren't expenses.  Similar to the allowances in a pro forma, they are simply set asides and only become expenses when the property taxes/insurance are actually paid from them. 2) Capital Expenditures - They certainly feel like expenses, but certain improvements cannot be expensed outright but instead have to be capitalized and expensed/depreciated over time.  3) Depreciation - Finally some good news!  Depreciation represents expensing the cost of the asset over a period of time.  It acknowledges that long-lived assets (i.e., assets that tend to produce income for more than a year) are expensed over a specified "useful life."  Depreciation isn't an actual cash outflow [because we+the bank made the actual cash outflow at closing], but we get to write off the cost of the asset as an expense over time.

Since cash flow doesn't equal net income, there are different scenarios that can happen. 1) Cash flow can be higher than net income.  Like @Sean Graham said, you can have positive cashflow but zero or negative net income-->and thus no taxes. This is generally when depreciation pushes an otherwise positive profit to zero or below. HOWEVER, 2) you can also have situations where net income can be higher than cash flow. In fact, you can have a tax liability even with negative cashflow. This will often happen when a CapEx need wipes out all the cash flow yet has to be expensed/depreciated over time. It could also happen if you have large principal payments that outpace your other operating income.

Hope this helps.

I agree with @John Underwood & @Mike Grudzien, and I would expand on documenting *EVERYTHING*.  Everything??  Everything!!

COSTS: I would look at any-and-all things needed to run an STR including items that are often done by owners--for example, property management. There's value in property management, and you mention that you don't want to deal with guests regularly. You could determine FMV for property management and compensate the party providing it even if it's one of you. I think defining and compensating costs like these helps avoid resentment that can happen when a party has to do otherwise unpaid work or otherwise feels the workloads are unbalanced. You could even define quality metrics for some of these tasks to avoid a party doing subpar work (e.g., all guest questions must be answered within X hours/days).

OWNER USE: What if one party wants to use the property during the highest demand time?  Is that fair?  Is it not?  Do you say that owner use is valued per the property's rate sheet for true-up during profit splitting?

DECISIONS:  Will there be a majority owner?  If not, how will decisions be made?  Can one party make certain decisions, say under a certain threshold?  What decisions require consultation with both parties?  What happens if there's a tie.

BUYOUT PROVISIONS:  What happens if one party wants out?  What happens if things aren't working?

FINANCING:  Would they buy in under your existing financing or would you refinance the property?  Again, there is a value that should possibly be compensated if their names are not going on the mortgage but they are splitting ownership and other benefits (IMHO).

There are probably a number of other easily overlooked items to consider.  

@Nasi K., check with the county tax assessor's office.

We did something similar in Alabama last year breaking off a couple of acres from a generational family property.  When the new lots were recorded, the county automatically defaulted them to residential (not agricultural) use.  

After a few calls to the tax assessor's office, we finally found who we needed to talk to and were able to go in and complete a form attesting to agricultural use.  

There might be a similar process in your county.  You may also be able to check the website to see what they registered your current use as...perhaps your county doesn't default to a non-agricultural use.

@David H., two of the markets that I frequent are mostly 7-day minimums during the high season.  Actually, they may be 7-day BLOCKS (i.e., you could do 7 days or 14 days but not 10).

We co-own on the NC coast where most of the rentals are Sat-Sat.  The area is only accessible by ferry, so that means large crowds on Saturdays.  When we do adjacent owner blocks during the summer, we switch to Friday and/or Sunday changeovers for our owner group to avoid the Sat-Sat crowds. 

My family also goes to the Gulf Shores area of Alabama each year, and virtually every listing I've seen there is Sat-Sat during the summer.

I would suggest Sat-Sat because I think that works with more people's M-F work schedule.  If your guests are typically driving in from nearby, then perhaps Fri-Fri.

AnyDay-AndDay could still leave gaps in your schedule.  So could allowing people to do 7+ days versus full 7-day blocks.

I think a big part of it is the type of guests/vacations.  The two places that I'm referencing are more of the true "destination" type places.  If your location is more of a quick get-away, then 7-day min may not fill in as well.  But like you say, you can always try and then reduce the minimum later.

Another vote for MileIQ.  

Swipe left for personal.  Swipe right for business.  Swipe and hold to add a purpose (i.e., tagging).  It can be set to auto-classify trips as well.

Best practice is to keep it up to date (i.e., classify your trips) frequently.  Since it's tracking via your phone, it tracks everything whether you're in the "subject" vehicle or not.  You can delete trips that were not made in the subject vehicle, so your percentages are accurate .  Mine is set up to send a weekly email reminder for unclassified trips (which is probably its default).  

I'm sure you could...as long as you're actually paying that expense to someone...oh wait, that person would be yourself...so you'd need to both record the income of you paying yourself as well as the expense of yourself paying you.  It's a wash. (Which actually matches what really happened...you didn't pay anybody, and you didn't receive any pay for your stay.)

In other words, there are no phantom expenses.  

Would you be making money if you weren't staying there?  Sure, but you also wouldn't be incurring the loss (i.e., expense) of you staying there at the same time.  So in that case, you would be making net income.  But in this care, you're not.  It's a wash.

TLDR:  I'd say don't empty it until you know it needs to be emptied.

Distilling your post, I see it as 1) you want to sell a property and 2) you see the existing furnishings as a liability.  #2 is probably not true.

Scenario 1 - Someone wants to buy it to use as an STR: Someone wanting to continue to use it as an STR definitely wants it to already be furnished. Even if they don't like everything, for the buyer, it's easier/cheaper to replace a few things than to have to furnish from scratch. I've purchased 3 furnished STRs, and the math definitely would have been different having to furnish them from head to toe. Sure, we changed certain things, but it was way cheaper than starting from scratch. Where do STR buyers tend to look for properties? On the MLS (whether via an agent or via Realtor/Zillow/Redfin), so that's where you need to be.

Scenario 2 - A homebuyer looking for a primary: This is most common (except maybe in vacation markets). Typical homes are being sold by a family that's living there, and they'll move after it's sold. So people are expecting to see personal property in a house and don't expect it to convey. Often, they'll see something that they want, and want that included. This becomes a negotiating point...maybe you can add some $$$ to the purchase price or get some other negotiating point or goodwill. So what you're seeing as a liability might be something that you can turn into more $$$ during the negotiation. They may want something and ask, or you can offer to leave things for $$$. Where do homebuyers start their searches? On the MLS (whether via an agent or via Realtor/Zillow/Redfin), so that's where you need to be.

In short, I'd try to get more $$$ out of the furnishing by adding them into the deal instead of looking at them like things that I need to spend money to get rid of.

I'm pretty sure you can do BOI filings for free on the FinCen site.

However, our CPA recommends possibly using a third-party service because many of them may make changes/updates (e.g., your address changes) easier.  He has a particular recommendation, but I don't know it offhand because I haven't done mine yet.

Also, my understanding is that BOI isn't an annual filing.  It's one-time plus updating it if/when the info changes.