All Forum Posts by: Nicholas Schwab

@Basit Siddiqi I'm so glad you said this! I think of this when I hear about cost segregation studies. I'm ok with my 27.5 depreciation lol. Slow and steady. Small and mighty. 

I'd love to hear how this 'should' work!  I'm still down the rabbit hole of all this. I buy nice house hacks in great areas, so... I'm always at a loss. A million dollar home with 30K in taxes for example. Services: I was thinking basic cleaning/laundry. I could systemize that. Mealprepping. Tailored workout plans in our full home gym. Like a health cult lol. And backed up with lots of pictures and documentation. And if I tried to report that on Schedule E... I think I'd be laughed at.  So I'm on Schedule C .... and my very expensive home ultimately generates a large loss. And the loss offsets my wage income. If I actually go for this, I'll be planning on an audit from day one and I'll have my ducks in a row :)

I've looked back at my returns for my last few hacks; a 2, a 3 and a 4. While living in the property, after expenses, all of my properties have operated at a paper loss with standard depreciation. I have thousands in suspended passive losses. 2 of my properties are actually in Spring just north of you Michael. Most of my properties are newer and in great areas. NY and TX, with very high property taxes and insurance. That probably contributes to the loss. 

Services... I was thinking of providing cleaning, a full gym, personalized workout plans, mealprep services; something like that. A health cult? Yeah, maybe. I'm still thinking lol. I know providing substantial services to long-term tenants is unusual, almost group home-ish, that's why I wanted to bring the thought here, to the largest community of smart people. 

I was planning to open an LLC, document document document, and treat this like a business. But if this is a million-dollar home with 30K in property taxes, I think my business is going to be showing a loss.

Have you ever heard of a house hacker that provides substantial services to their long-term tenants (or roommates)? If I go this route, it seems like I'm required to report income/expenses on Schedule C. My home is expensive and will show a massive loss. I'm subject to SE taxes but my net income is 0. How would this work since I'm required to try and make a profit, but between deprecation and ordinary expenses I'll be at a massive loss each year. This loss will be active and therefore reduce my W2 active income taxes. I'll setup an LLC and run this like a business. But it seems that if I'm wanting to provide these services, I'm not eligible for schedule E passive reporting, and my house-hacking losses will be active losses. Any thoughts on that? It sounds like I'm begging for an audit lol. I'm not. But Schedule C is the way I'm reading the law right now.

Thanks for your thorough response. Yes, I do anticipate higher scrutiny. But since I am wanting to provide substantial services, laundry, meals, cleaning, it looks like I do not even have the option of reporting on Schedule E.  I work full time so no REP for me. I need to pay some good advisors for a few consults. One other question I've been researching is that if I simply use a bedroom in my home as an Airbnb to allow passive losses to become active, does that affect the rest of my rentals? My guess would be no, even though currently they are grouped together and characterized together. Either way... I've never heard of someone providing substantial services to long-term tenants so I thought it was interesting to throw it out there. And if I go further with this strategy, I'll keep you updated :)

I haven't seen anybody write specifically about this before. After looking at hundreds of thousands of dollars in suspended passive losses, I'm planning to provide substantial services on my next house hack. This sounds like it would allow me to file an LLC, report on Schedule C, and then have my inevitable losses start to offset my W-2 income. No REP or STR needed. Self-employment tax will be required on the net gain, which will of course be 0 after property expenses and depreciation. Long-term rental with substantial services provided. I think my other rentals will still be considered passive. I know sometimes they get characterized and grouped together, but this would be very different with the schedule C and active nature of what I'm planning to do. Letting the tax tail wag the strategy? Yup. Any drawbacks? Anyone ever heard of someone doing this? I've been deep-diving this thought process for days haha