All Forum Posts by: Joseph Palmiero

Generally, the basis of the property received is the fair market value at the date of death.

Quote from @Christopher Zikakis:

Quote from @Joseph Palmiero:

Answer to questions 1: I think this could be a viable tax strategy by running it as a STR for 1-2 years. I like running it at least to the 2 year mark better. Echoing what @Michael Baum advised, there is potential risk with this strategy. The longer you operate it as a STR, in my opinion, the lower the risk becomes. The STR rules have been on the IRS books for a long time.  But, the audit risk could increase with the increased popularity of this strategy in recent years.

Answer to questions 2: You would not be able to deduct expenses until the property is placed into service. Placed into service is defined as when the property is ready and available for use. So expenses paid before that would added to the basis of the property and depreciated. Generally, expenses are fully deductible after that date.  You would be able to take bonus depreciation on your 5,7, and 15 year improvements after the property is placed into service. This would include items such as appliances, carpets, furniture, landscaping, fences, etc. I am assuming the 15k Mortgage is just the interest portion of the loan payments. Only interest is deductible.

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?

Improvements after the property is in service can be more advantageous. This opens the possibility of using various expensing elections such as the de minimis safe harbor election.  This election allows you to expense individual improvements made under $2,500.

Answer to questions 1: I think this could be a viable tax strategy by running it as a STR for 1-2 years. I like running it at least to the 2 year mark better. Echoing what @Michael Baum advised, there is potential risk with this strategy. The longer you operate it as a STR, in my opinion, the lower the risk becomes. The STR rules have been on the IRS books for a long time.  But, the audit risk could increase with the increased popularity of this strategy in recent years.

Answer to questions 2: You would not be able to deduct expenses until the property is placed into service. Placed into service is defined as when the property is ready and available for use. So expenses paid before that would added to the basis of the property and depreciated. Generally, expenses are fully deductible after that date.  You would be able to take bonus depreciation on your 5,7, and 15 year improvements after the property is placed into service. This would include items such as appliances, carpets, furniture, landscaping, fences, etc. I am assuming the 15k Mortgage is just the interest portion of the loan payments. Only interest is deductible.

The fencing is 15 year property which would qualify for bonus depreciation.

Yes you can assuming that you own the house and you are renting half the house and living in the other half.

Assuming no gain on the sale, they would pay tax on the interest portion only.

Generally this would be a capital loss deductible on you income tax return up to $3000 per year with a carryover of the remaining balance to future years.

Unfortunately you cannot offset the loss generated by the cost seg against the 401k withdrawal unless you or your spouse (if you are married) can meet the real estate professional status tests and you also materially participate in the rental property. 

You can do a cost segregation, but it usually is not necessary with new construction as long as you have detailed records of what went into the construction.

Yes, you can deduct a portion of the utilities based on the rental square feet.

Great information @John Malone.

Thank you for sharing!