All Forum Posts by: Bonnie Griffin Kaake

@Tim Bee This is not about capitalism or communism. It is about what is fair and in the best interests of all. We do not have to go to extremes and scare tactics in either direction. 

Quote from @Mel Adams:

Hey Cynthia - I used a second home loan and started it as a STR, but have transitioned to MTR. Been working fine for me and I personally prefer it over STR.

Like Joey said, less turnover, less wear on the property (travel nurses are hardly home and when they are they're sleeping lol), less replacing towels and pots and pans when STR guests inevitably ruin them, and still good returns if you're in a market with demand for MTRs. And you don't have to deal with STR regulations!

I'm still relatively new in the MTR space, but I'm noticing new travel nurses come in waves and it's cyclical, so depending on your market you could probably time it to where it's vacant when you want to spend time there. Happy to help if you have other questions.

and @Cariza Abinguna You may want to know that if you change from a STR to a MTR/LTR that you must have your CPA/tax professional do a 3115 Change of Accounting form to change from either 29.5 year depreciation schedule as a MTR/LTR to or from a 39 year depreciation schedule as a MTR/LTR. The last thing you want to do is cause an IRS audit. There are also limits to how much time you can spend in your "rental" to keep it as a rental property.

Keep in mind that MTRs are actually a subset of long-term rentals and get depreciated over 27.5 years. STRs get depreciated over 39 years. If you switch from one to the other, you will need your tax professional to do a 3115 Change of Accounting Method to stay IRS compliant. Or, if I do a cost segregation study for you, I include the 3115 in our study.  

You most likely can qualify for cost segregation studies on STRs, MTRs and LTRs. This usually generates about 25% to 35% of your purchase price plus improvements in tax benefits. And, no, you do not have to do the study in the first year of ownership. Although, it is best to do it sooner than later. It is usually most beneficial on properties purchased or built for $200K or more. Don't leave money on the table that you could be investing elsewhere. 

@Mitch Davidson Good post! I once lived in beautiful Ashville years ago. I have own commercial properties in years past. Now, I have a MTR and I also allow pets. I allowed one tenant (relative) to bring two big dogs...big mistake. One was too much of a puppy and damaged rugs and a Lazy Boy reclining loveseat. Now I only accept small pets and limit it to one. I never worry about having it rented. The unit is very close to three hospitals and a dialysis center. 

If you haven't done a cost segregation study on your rental, STR, MTR, or LTR, you may be leaving money with the US Treasury that you could be using elsewhere to re-invest. Estimates are free and give you enough information to decide if it is worth doing.

@Evan Kline Your observations about the differences between STRs and MTRs is good. Most STR tenants are not as challenging as the one you had though. If you are new to this STR to MTR switch or the other way around, be sure your CPA/tax professional is up-to-date with the regulations. Most are not. STRs are depreciated over 39 years and MTR are considered LTRs (residential) and are depreciated over 27.5 years. A quality engineering-based cost segregation study can not only get you back on track and update your tax filing, it can also keep a significant amount of money in your bank account that you would ordinarily pay in taxes. Yes, this works for condos and single family rental properties as well as small to large commercial properties.

@Curtis Lipsey The term MTR is a relatively new concept. From an IRS perspective, it is a long-term rental LTR since it is 30 days or more. If you start as a LTR/MTR and then want to change or get approval to change to a STR of less than 30 days, your tax professional will need to do a 3115 Change of Accounting form to change from a 27.5 depreciation schedule to a 39 year depreciation schedule.

Be sure to check any HOA regulations, most will not allow a STR even if the city or county approves it. You will also want to know if the HOA will allow a rental of the property at all. Some will only allow one family to rent/live in a property under single family zoning. If you were planning on creating more than one rental unit in a single family zoning area or under an HOA, you want to know this BEFORE you invest in a property.

@Michael Bandur There are opportunities and will be opportunities in both STR and MTR (MTRs are treated like long-term rentals). There are more complexities with the STRs and many, if not most, CPAs/tax professionals are not up-to-date. Often overlooked is that a STR must be depreciated over 39 years, not 27.5. And, if you switch from a STR to a LTR or the other way around, your CPA/tax professional will need to do a 3115 Change of Accounting form. There are other challenging areas with tax filings on STRs that could cause you to pay more in taxes than you need to pay.

Quote from @Ross Alcorn:

I'm looking for some advice around cost segregation.

I purchased a townhome in 2019 that has now been an LTR for two years. I purchased a separate townhome in 2021 that I am currently house hacking in and plan to turn into a rental property in the future. I purchased both of these homes as new construction. I plan to hold these properties another 5-10 years as of right now. My question is does it make sense to do two separate cost segregations for these town homes?

When tax planning with my CPA earlier this year I asked the question around what best practices are his real estate investor clients using for cost segregation and does it make sense for me to?

I was told it doesn't make sense usually to do a cost seg if the purchase price of a home isn't $1 million or above since they are fairly expensive. 

My goal with potentially doing a cost segregation is savings on taxes in the short term to acquire more properties over the next few years. 

Hi Ross, I teach CPA's continuing education classes. Too many over the years have admitted to not recommending cost segregation studies because they thought they cost too much, hate doing 3115s on older properties, or simply don't know how to discuss the advantages of cost segregation with their clients. Admittedly, it is so much easier for a tax professional to simply do straight-line depreciation. Even the American Institute of CPAs (AICPA) and the Journal of Accountancy recommend doing cost segregation studies. Quality Engineering-Based Cost Segregation Studies can be cost effective on properties with purchase prices of about $200K, including single family rental homes and condos anywhere in the country and even the US Territories. 

As a result of this reluctance by tax professionals to recommend doing cost seg studies, many investors simply upgrade their CPAs/tax professionals to those who are more up-to-date and RE savvy and work with quality cost segregation companies and consultants in this RE niche to reduce your risk of audit.  A good RE/cost segregation consultant can maximize your tax benefits and increase your cash-flow to leverage what you have. 

@Brad Milligan  As a passive investor in a syndication, you can only use the cost segregation tax benefits against the income from that passive investment. Contact a RE knowledgeable CPA for guidance. And, consider the fact that most syndications are held for about 5 years and then sold. If they take accelerated depreciation there will be recapture...some can be mitigated but not all. 

@Pierre E.  I also recommend getting a cost segregation study done before making renovations if possible. Nevertheless, if the property has not been occupied you will not be able to do the cost segregation until it is occupied. Therefore, I recommend that you do what you have to do in the first year to get it occupied and then do the major renovation in the second year. Of course, if it cannot be occupied until it is renovated, that is a different story and you can do the cost segregation study once it has been renovated and ready for occupancy (listed for rent). I know it sounds confusing but that is why we experts in cost segregation and tax benefits for investors are here to help.  

By the way, the most experienced cost segregation companies and those who do quality studies (engineering-based) do studies anywhere in the USA and are not likely to be "local".