All Forum Posts by: Bonnie Griffin Kaake

@Samuel Nyu 

If you are feeling uncomfortable up front and you are having to live next to this guy in a duplex. Save yourself the brain damage especially for your first rental. Trust your instincts. His aggressive posturing can be trouble, I know I am being judgmental but I smell wife abuser. My apologies if I am offending anyone, I am married to a psychologist. 

No the market is not "over saturated". It is growing very fast in the areas that are allowing the opportunity to own and lease these STR properties. The unfortunate side is that many of the tax filings may likely have visitors from the IRS. We see well over half of the depreciation schedules are being done incorrectly. I have just published a document on Short-Term Rental Q and A's for investors in these properties and their CPAs/tax professionals. If you want a copy, let me know. No cost. Real estate agents can add value to their services by knowing these facts as well.

@Jenny Scott  What you are suggesting would not be my preferred direction from experience. No two people clean or consider clean the same way. Years ago my daughters and their families shared a tent camper. It always starts off well. Then, somebody breaks something and does not repair the damage or doesn't repair it soon enough for the next usage. One party wants out because another party did not clean the unit to their satisfaction after use. In short, relationships get harmed. 

Check the regulations and laws in the area before making any decisions. You might be better off listing it with a management company and book your stays when you want them. If you don't intend to stay there more than 10% of the time, you can depreciate it as a long-term rental of 30 days or more, or short-term rental <30 days or transient (like a hotel) for 7 days or less.  

I just published a Q &A document about STRs because we have been seeing the majority of depreciation schedules for STR are not being done correctly and there is too much misinformation on the Internet.

@Bernard Reisz Your explanation of cost segregation is a good short answer for those unfamiliar. What I would add is that the structure of the building and certain capital items cannot be accelerated or Bonus Depreciated. Only a good engineering-based study will give you the best break-out of what can and cannot be accelerated. The structure and capitalized items continue to depreciate over the life of the property, 27.5 or 39 years.  

And, remember that we should not be panicking about the 80% Bonus Depreciation for 2023. You still get 100% accelerated. 80% in the first year and the other 20% which can be accelerated is done with double-declining depreciation (DDB). 

 When you buy a property with appliances in it, you have paid for them with your purchase. When you remove them, you need to get them off your depreciation schedule. If you replace them the tax year following your purchase, you can expense the new ones rather than depreciate them. It is an item you will likely replace every 10 years so they can be expensed under the 2014 Tangible Property Regulations (TPRs). 

This is easiest to implement if you have done a cost segregation study the first year of purchase and one that gives you not only the value of the appliances when the property is purchased but also what the replacement value is. This helps you, your tax professional and the IRS. Some owners can leverage the de minimis Safe Harbor Regulations and expense items under $2,500. 

@Michael Meegan The article is on its way to you. It has just been released for publication. I know it will help you and others. 

 Yes, Greg, I totally agree. Kudos to you. You obviously have some awareness and see this as well. I see it in depreciation schedules for STRs and even the mandatory 2014 Tangible Property Regulations (TPRs). We need more CPAs, EAs and accountants coming out of our colleges.

The vast majority of CPAs/tax professionals are simply too busy to be studying this level of detail about depreciation for investment properties. This also applies to STRs, long-term rentals and other commercial properties. Depreciation is not only very complex but also it continues to change every year to some extent. It take a team.  

 Congratulations! You have taken a big step to secure your future. Don't forget to check out cost segregation on your purchases. It can give you extra cash-flow to purchase additional properties or higher value properties. The IRS's preferred methodology is engineering-based studies which help you, your tax professional and the IRS going forward. They are also far less likely to trigger an audit!

@Michael Meegan All STRs must be on a 39 year depreciation schedule. Unfortunately, I see many depreciation schedules for STR being done by CPAs/tax professionals being done on 27.5 years. It does not matter whether the STR is active or passive, it gets 39 year depreciation. If you want more information, I have a Q&A document I can send you on STRs with links to IRS regs as well.

For further clarification of Schedule C or E, maybe this will help. 

Schedule C if you as the owner provided services that trip Treas. Reg. Sec. 1.1402(a)-4(c). These are services for the convenience of the occupants other than rental of the space. Otherwise, Schedule E is what your tax professional will use. https://www.irs.gov/pub/irs-wd/202151005.pdf (see pages 3 & 4)