All Forum Posts by: Heidi Fischer

You can use a cost segregation study and bonus depreciation on more than one property.

Also just to confirm this, if your average rental interval is 7 days or less and you materially participate? Section 469 doesn't limit the losses the depreciation generates because they're not passive. The losses are nonpassive.

But if you really go gangbusters with this, there are other limiters. One you may encounter is the Section 461(l) excess business loss limitation. Basically it says you can shelter any amount of business income with a business loss (like from a STR). But you're limited in the amount of business loss you can use to shelter nonbusiness income like W-2 income and portfolio income.

In 2025, the excess business loss limitation is $313,000 for single filers and $626,000 for joint return filers.

Example: You have no business income, are single, generate $1,000,000 on your W-2 and lose $500,000 on your STRs. You can use only $313,000 of the business losses from the STRs to shelter up to $313,000 of the W-2 income.

The unused excess business losses then turn into net operating losses and carryforward to the next year.

Depends on how much income you are trying to offset. Nothing wrong with using the deduction on 2 properties, but as you get closer to zero income you are offsetting at a lower marginal rate and is therefore less of a benefit.  That said, still worth exploring, but understand that there is diminishing returns as you offset more income and get closer to $0. 

If you do not think you will launch a new property the following tax year, or if it takes your current tax bill below $0, then better to wait until next year. Another option is to depreciate but not do bonus depreciation on one of the properties, that way you take a smaller loss for year 1 but have a greater amount to offset for depreciate in each tax year for the life of the property. 

As for 100% Bonus Depreciation, nobody knows unless you have direct access to hundreds of congress people. 

Disclaimer: Not a CPA or tax professional. 

If you close by December 2024, you’ll be eligible to take bonus depreciation on your 2024 taxes, but it’s capped at 60%. In 2025, it drops to 40%. Regarding your second question, are you asking if those activities help meet the IRS material participation tests or qualify you as a real estate professional?

 Yes - you can do both in the same year. And you can group the two with -9 election. Same rules of course.

Thanks for the compliment!

2024 v 2025 is a gamble. Worse, it is a political gamble. Anything is possible. You can win (or lose) either way. Count me out.

My general advice is always the same: business first, taxes distant second. If you can make rent money in December, make it.

There is no limit on the number of STRs. No problem buying 10 of them if you can pull it off.

@Heidi Fischer

I just answered your question in great detail in a separate long post:
https://www.biggerpockets.com/forums/51/topics/1220969-expla...

I'm writing this in December 2024, when every other question asked on the Bigger Pockets tax forum is about STRs. If you're not sure what the fuss is all about, read this older post first:
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

Today, we're discussing a very specific question related to STRs:
Can you buy an STR in December and still catch all the tax benefits of the so-called STR loophole?

Maybe. Here is a scenario where it all works out nicely.
- You close on December 10th
- The property is in great shape and does not need any significant repairs
- It only needs some paint touch-up and changing a couple of broken fixtures, which you do yourself
- You spend the next week buying furniture, electronics and supplies and installing/arranging everything yourself
- You also roll up your sleeves and scrub the toilets and sinks and appliances
- You put it on AirBnB/VRBO and have your first guest renting it for the 3 days of Christmas
- You second guest rents it for the following weekend and leaves before NYE
- You personally clean and restock the place between these two guests

Congrats! Save for some unusual complications, you seemingly met all the conditions for your tax benefits.

Now, to traps and gotchas.

Trap 1. Minimum of two completed stays.

You have probably heard that rental property deductions, such as depreciation, start when the property is placed in service. And this date is usually before you get your tenant in. But not so with STRs! It is not enough to place your STR in service.

Why? Because one of the conditions is that your average stay must be 7 days or less. We had a recent court case which said in black and white: you cannot calculate an average if you do not have at least two numbers to average. Duh!

Lesson: if you do not have two separate guest stays completed in 2024, there is no way to meet your 7-day test. You have an SOL, not an STR.

1st warning: the stay must be finished in 2024. Which means that a guest who stays in your STR from December 30th of 2024 through January 1st of 2025 counts for 2025, not for 2024!

2nd warning: you cannot split one 6-day stay into two back-to-back 3-day stays. Nice try, but no cigar.

3rd warning: only paid stays count, and only full-price stays, not discounted favors for friends and family. Which brings us to...

Trap 2. Personal use.

You cannot have more than 14 days of personal use in December. Luckily, staying on the property in order to make repairs and prepare it for tenants is business use, not personal use. Sounds like you don't need to worry about personal use, right? Sorry, you do.

It is because of the definition of personal use. Guests staying for free is personal use, even if they are not related to you. Guests staying at a discount, technically called "below market rate" is ALSO personal use!

Even if you do not exceed 14 days of such "personal use", you still have a problem: these guests will not count towards your required two stays minimum. So if you let your buddies stay there one weekend for cheap, you still have to get two other guests during December.

Clarification: the test for personal use days is more complicated. I mentioned its simplified version of "no more than 14 days" only in the context of our specific scenario: buying a new STR in December. For all other scenarios, you will need to look up the full version of the rule.

Trap 3. Material participation.

I discussed STR material participation requirement in my other post, linked at the top of this one. Here, we will focus only on a December-specific question: how can I meet material participation if I buy an STR in December?

The straightforward method is to do everything yourself, as in my example above. You hired cleaners to clean the unit between tenants? Oops, game over, you lost. You hired a management company? You hired a plumber to unclog the drain? Any of the above kills the STR loophole under this "substantially all work" option for material participation.

Is there a way to qualify if all my outside help was a cleaning lady for 2 hours? Yes, there is. But then you personally will need to log at least 100 hours of hands-on work on the property, all in December. Reading Bigger Pockets posts does not count, sorry. Not even my posts. Real work only.

Any other workarounds? Maybe, but those would be super rare.

2024-specific consideration: should you even try?

There is a quirk this year, and an important one. New administration.

As of now, 2024 bonus depreciation rate is 60%. If you go out of your way to jump through all the hoops, all you can claim is 60% of cost segregation benefits. (Yes, there is a potential Section 179 alternative, but it is for a different post.)  

However, it is possible that the new administration might bring 100% depreciation back. 
- Is it guaranteed? Certainly not.
- If it happens - when? Your guess is as good as mine.
- If it happens - would it apply retroactively to 2024? Who knows?

Amidst this uncertainty, some people suggest that it may be wise to not rush the property in December but wait until 2025. The risk is missing out on 2024 60% bonus and getting stuck with even stingier 40% slated for 2025. The potential benefit is qualifying for a possible 100% in 2025 that may or may not be extended back into 2024. Decisions, decisions... Do you feel lucky, punk? (For the young and ignorant: this was a Clint Eastwood reference)

This is an EXCELLENT post! I appreciate this info greatly. So waiting to buy/close in 2025 is better or “put into service” in 2025? Hoping we get the 100% back but reasonable to still get the 40%.
also, can an individual/LLC have more than 1 property per year that they can do the bonus depreciation on? Or is it 1 home/year? Thank you for all of this info!! :)

To qualify for the STR Loophole, you need the following:

1. Average rental period of 7 days or less. As you correctly mentioned, you’ll need at least two stays.

2. For the material participation test, the easiest way to get it is Via the 100 hours and worked more than anyone else. If you can do that, then you can qualify. 

3. Don’t use it between Now and year end. 

Practically speaking, it’s going to be quite challenging unless you spend significant time. If I was you, I would just make sure you do everything in your power to qualify in 2025 because it’s going to be quite challenging. 

Just wanted to flag something potentially impactful for real estate investors: it looks like 100% bonus depreciation might be making a comeback next year. As many of you know, this could significantly change the investment landscape by allowing immediate expensing of eligible property costs.

Of course, the devil is in the details. We're waiting to see exactly how this reinstatement shakes out in terms of implementation and any potential limitations.

My advice? Hold tight for now and let's see what the final legislation looks like before making any big moves.

Any additional questions, feel free to reach out. 

Thanks for you comment-Would you not buy? or not put in service? Wait to take the bonus depreciation? From my research, it seems the first year that it is put in service is when you can bonus it. I really want to finalize the purchase at least -Because the property for legal STR is very hard to come by here in City of Las Vegas. There are not many legal locations available on our map.
Im looking to add at least 1 STR per year so maybe property #2 I can do at 100%. 

Most important is for me to start the “business”. 
Funny because I’m a physician trying to get to retirement with STRs-not sure if it’s going to pan out but being in a city with lots of tourists is helpful. I need about 10 homes total to make up my salary in W2. Mostly all our STRs here do 60-100k/year each home. Any advice on this plan from community is appreciated.