All Forum Posts by: Nick O.

1. Yes, you can take advantage of bonus depreciation if you structure it properly, even with a partner, through a simple LLC or partnership agreement. Both partners typically share 50% of the tax benefits.

2. Bonus depreciation applies to offset any income, not just W-2 income, including passive or active real estate income.

3. Yes, if you don’t hold the property long term or exchange it (e.g., through a 1031 exchange), you may have to recapture the depreciation upon sale.

4. Switching from long-term to short-term rental (STR) applies for the full calendar year when calculating depreciation benefits.

5. Using co-hosts may help, but be cautious of the 100-hour requirement for material participation.

Hey Nick, 

1. Yes, you can take advantage of bonus depreciation when you partner, typically through a simple LLC or partnership agreement. In a 50/50 partnership, each partner generally receives 50% of the tax benefits. However, if you are pursuing Short-Term Rentals (STRs), each partner must qualify individually for "material participation," which can be more challenging when there is a partner. Material participation usually requires that you work more hours than anyone else involved, including your partner, making this qualification tricky in partnerships.

2. Bonus depreciation is highly beneficial because it can be used to offset any income, not just passive or real estate income. It applies to both W-2 income and other forms of active and passive income, meaning that the STR loophole allows you to leverage depreciation beyond just real estate activity.

3. When selling a property, you will have to recapture the depreciation you've used to offset income, but you don’t pay taxes on suspended depreciation. Suspended losses can be carried forward and used to offset capital gains or depreciation recapture upon the sale of the property. If you perform a 1031 exchange, you may avoid immediate recapture taxes, but long-term holding strategies must account for eventual recapture.

4. Depreciation benefits for a property switching from long-term rental (LTR) to STR apply based on the entire calendar year. Mid-year conversions do not qualify for a partial year calculation of STR depreciation; you must meet the full-year requirements to utilize this tax advantage effectively.

5. To meet the "material participation" rules for STRs, there are multiple ways to qualify, but careful structuring is important. Using co-hosts might help distribute management tasks, but this can complicate your ability to meet the material participation requirements, especially the 100-hour rule. Rotating co-hosts for tax purposes may not make business sense, as it is difficult to find reliable management only to replace them quickly.

Hope that helps! 

1. Details depend on how you partner and so on. But generally, in a traditional 50/50 partnership, each partner gets 50% of the tax benefits, too. With STRs, each partner will need to qualify for "material participation" though, and having a partner makes it a lot more difficult.

Same issue: the requirement to work more hours than anybody else, which would include your partner. If you win this comparison, your partner loses.

2. Any income.

3. Correct. Cannot eat the cake and have it, too.

4. Entire year. Mid-year conversion from LTR to STR does not work.

5. You can try this rotation for tax purposes, but it makes no business sense. Finding a capable and trustworthy co-host, only to dump them after a short period of time for tax reasons?

@Nick O.
1. Yes, you can take advantage of it through a simple LLC or partnership agreement.
2. No, STR Loophole makes depreciation useful to offset all active income and passive income
3. You only pay taxes on the depreciation you used to offset other income. You don't pay taxes on suspended depreciation. The suspended losses can used to offset the capital gains from the sale of the property or to offset deprecation recapture. Happy to explain more. 
4. Yes, full calendar year average rental time. 
5. There are multiple ways to qualify for "material participation" but this would help to keep someone else under 100 hours. 

Does this help?