All Forum Posts by: Christopher Zikakis

Thanks for this.

Yes, understood, and also understood that intent matters, but as I said with my reply to @Michael Baum it must be relatively common for people to use the STR exception, then fail/giveup the following year or two when they realize how much work it is, or that they can't materially participate?

If I'm understanding correctly, as long as I have the unit in service, then make the targeted updates/renovations, these expenses would be deductible.  Alternatively if I make all of the updates prior to it being in service the expense is added to my basis and can then be depreciated.  Is there an advantage one way or another?  I'd imagine that it'd be better to have it as an expense as the full expense would be deducted?

 Appreciate the reply.

The way I've been thinking about it is this: Suppose my intention was to use the STR exception indefinitely - if I was able to hit 100 hours of material participation in years 1 and 2, but found that I couldn't do so in year 3 (either not having enough work to do on a single unit, or it being too much and needing to hire a management company), I wouldn't be able to claim the STR exception in year 3.

Regarding it seeming weird to stop after two years, I may be assuming it'll be easier/less work than it is. However, the idea of being able to have significant tax savings on my w-2 income while simultaneously making tangible improvements to a vacation home before beginning to use it regularly is what is intriguing.  The alternative being that I buy the home with after tax dollars, pay all of the expenses with after tax dollars, make all the improvements with after tax dollars and not being able to deduct/depreciate anything.

 Hi January, thanks for your reply.  I'm looking in the White Mountains area of New Hampshire. I'd like to find a unit that needs work because I think it'd be challenging to hit the material participation threshold of 100 hours with booking/property management alone for my specific situation.  

Additionally, turnkey properties in this area are quite expensive and I'm fairly handy/enjoy doing the work. Lastly, I'd like to create as much of a deduction on my w-2 income as possible.

I'm sure this has been covered but I'm having difficulty finding a few specific answers as I try to map out a strategy.  My wife and are are W-2 employees.

The goal is to eventually have a vacation home that my family and I can use and also selectively rent out to friends and extended family.  In order to achieve this my thought is to do the following:

1. Purchase a property that needs a bit of work.

2. Year 1 & 2: Utilize the STR exception, rent occasionally averaging 7 days or less, materially participate by handling bookings and renovating/improving the home. Perform a cost seg study. Occupy the home for less than 14 days annually.

3. Year 3:  Begin using the home personally, occasionally rent to friends/family mentioned previously.

Questions:

1. Are there any areas of concern with utilizing the STR exception for only 1-2 years then transitioning property to personal use with the occasional renter?

2. During the period where utilizing the STR exception are the expenses for renovation/improvement netted against the income the home produces (along with mortgage/property taxes/etc), with the net loss considered non-passive?

Said differently, in a very simplified version:

-30k   Cost of improvements (appliances, carpet, flooring, painting, etc)

-15k   Mortgage

-10k   Property Tax

-1k     Property Insurance

+24k Rental Income

-32k Net Loss: Would this be my deduction against W-2 Income?  Understand that there could also be bonus depreciation but putting that aside for now, just want to make sure I'm thinking about this the right way.

If it's not obvious, the goal is to give investing in real estate/rentals a try, and if we don't enjoy doing it, worst case we end up with a vacation home with a lot of improvements completed that we were able to deduct.

Thanks in advance.