All Forum Posts by: Bonnie Griffin Kaake

@Jeremy Hartwig  As part of your due diligence, you may want to consider doing a no-cost estimate/pre-analysis of the potential tax benefits available. Sometimes it can make or break a deal. Expediting the depreciation with a cost segregation study can add a healthy amount of cash flow in the first year to 5 years when you need it most. 

Quote from @Jon Fletcher:

Now that 100% bonus depreciation is over and tax returns have been filed, the next question on a lot of people's minds is: Can I switch my STR property to a long-term rental? The tax benefits are gone, but the management of an AirBnB is still there. Is there a minimum amount of time that the property should remain a STR before switching to a long-term rental?

Jon, You will also need to file a 3115 Change of Accounting form if you change from a STR to a LTR. This is because STRs (less than 30 days on average) are depreciated over 39 years. LTRs (30 days or more on average) are depreciated over 27.5 years.

Quote from @John Carbone:

Quote from @Bonnie Griffin Kaake:

 @Pretty Khare

As others have mentioned, you do need a savvy CPA to help you with this so you are on the right side of the IRS. One thing that is not clearly mentioned above is that if you are materially participating in the short-term (Airbnb or VBRO type property), it is a business, like a hotel and qualifies as an active investment, not passive. And, you don't have to be a real estate professional to take advantage of this benefit. Just be sure you are not staying in the property for personal use for more than 14 days or more than 10% of the time it is rented to others. For accelerated depreciation purposes, a short-term rental is less than 30 days and the property must be depreciated over 39 years, not 27.5. Cost segregation is excellent for STRs because you can take it to offset the terrific gains on this type of property as well as off-setting it against W2 income if you are materially participating in its management. 

My understanding is that to be classified as a hotel and active you need to be providing substantial services. 

1. You may be confusing the use of Schedule E versus Schedule C for tax filing. STRs rented and NOT providing substantial services (regular cleaning, meal prep, trips/excursions, etc) goes on schedule E, not schedule C. 
2. On the other hand, if you are renting the property for less than 30-days on average, it is a STR depreciated over 39 years.
3. If you are renting it for 30 days or more, it is a long-term rental and must be depreciated over 27.5 years like any other long-term rental property.
4. If you are a RE Professional, you can claim STRs and LTRs as an active investment.
5. If you have a W2 and materially participate in a short-term rental for at lease 100 hours and more than anyone else, it is also an active investment and can be used against your W2 income. Accurate and meticulous record keeping will keep you safe from IRS audits.
6. Be sure to get an engineering-based cost segregation study done by a reputable company if you paid at least $250K for the property including land. CSSI provides audit defense at no cost to you for as long as you own the property plus 3 years...that is how long the IRS can audit your depreciation schedule.

@Greg O'Brien Your #2 above is needing a correction. If the average number of days per year for a rental is less than 30 days it is a short-term transient rental (39 years depreciation = commercial property). If it is 30 days or more it is a long-term rental (27.5 year depreciation = residential rental). 

Quote from @Steve Scholtens:

I am working towards making an offer on an RV Park in Michigan. It will need huge improvements. I will need help with funding, loans, and or investors. There is so much here on BP forums, that I don't know where to post or inquire. I am not currently a PRO member. Do I need to be for this kind of resource?

Thanks for your inputs and recommendations.

Steve

Hi Steve, I attended and exhibited at an OHI Expo/Conference https://ohi.org/ last year and you will find exactly what you are looking for by attending one of their conferences. There is also an Overland Expo/Conference https://www.overlandexpo.com/ that holds conferences in different parts of the country. There may be one near you. The resources at these conferences are incredible. You will learn a lot and find sellers, buyers, and investors. Let me know if I can be of service with tax benefits.

Quote from @Israel Mendiola:

@Bonnie Griffin Kaake Hi there! I came across your comment and I would like to know if it is possible to do the cost segregation and bonus depreciation if I non-resident of the US. I don't live in the US and I don't have another income in the US (such as employment or earned income), but I have a property that was rented starting in September 2023.

I sent you a private message. The short answer is yes but it does depend on specifics.

Quote from @Darren Maloney:

Good evening. I am thinking of buying an income property before end of year, in part to take advantage of the generous Jobs Act depreciation allowance which I understand will expire 12/31/22. Does this have relevance to a SFR and 2-4 unit strategy or just more systems-intensive MF, office and industrial assets? Will appreciate any insights. Thank you in advance.

This post was made a while back but it is worth responding to with updated information. The Bonus Depreciation of 100% went thru 2022 and then dropped 20% per year. There is a bill that has overwhelmingly passed the House and is being held up in the Senate due to the Child Tax Credit. We fully expect it will be passed by the end of May 2024. It will reinstate the 100% Bonus Depreciation for 2023, 2024, and 2025.

Next point, if you want to know how to choose a cost segregation service provider, be sure to ask the right questions. The cost of an audit can be high. Your best bet is to get an engineering-based study done, ask a lot of questions and get the answers in writing.

@Jen Lombardi  What you need is a pre-analysis on the properties. There is no cost and it will give you the numbers you and your superior need to make sound decisions going forward. On our pre-analyses/estimates, we also give you the NPV as part of the estimate. 

@Arn Cenedella This is an impressive portfolio. Congratulations! Let's connect, I am interested in what you do to add value to the deal. 

@Nickolas Wolfe You may not need REPS status to use the STR bonus depreciation against your W2 income. You do not need to go back to 2021's taxes to get the depreciation benefits available to you for 2023's tax filing. Hopefully, you have extended your tax filing so you can take advantage of these benefits for 2023. An engineering-based "quality" cost segregation study will bring your depreciation up-to-date with your 2023 tax filing.

If you have more questions, I am here to help.