invested $80,000 in 2021 to furnish their three short-term rentals they acquired in early 2021. Beginning in June 2021, Dr. Sadhil’s wife spends nearly 200 hours designing, furnish- ing, and renting out the properties with an average stay of seven days or less. They also hire a cost segre- gation expert to perform a study of their properties. The net result from the study is an additional $220,000 in accelerated depreciation. The Sadhil’s P&L from their rentals will look as follows for 2021:
P&L FROM RENTALS:
Income from the property: $60,000 (after taxes, insurance, and standard depreciation)
Furniture deduction 1 : $80,000
Accelertated depreciation: $220,000
Income/loss for 2021 from short term rental activity: $240,000
ized in 2021. This often occurs when investors decide to turn over the management of their STRs to a man- agement company or the properties are converted into long-term rentals. If you are reading this and thinking to yourself, “Hey, I meet REPS, so this does not apply to me,” think again. A common mistake made by inves- tors who qualify for REPS status is believing STR can be aggregat- ed with their long-term rentals no matter what. This has led to some unfortunate tax decisions for inves- tors who are not aware of STR and REPS’s complex rules. If you have a mixed portfolio and would like to
keep your REPS status clean, con - sider using a blocker corporation to turn your STR into long-term rentals for purposes of your tax return. If you would like a more in-depth analysis of STR, here is a link to an e-book I put together on the subject. • andersonadvisors.com/ short-term-rental-strategies
1 This deduction is taken via IRC 179 or IRC 168
Because Dr. Sadhil’s wife satis- fied the three prongs of the STR test above, the Sadhil’s will be able to use the $240,00 loss to offset Dr. Sadhil’s income. The loss amounts to nearly $60,000 in tax savings. OTHER POINTS TO CONSIDER In the above example, if the Sadhil’s fail to meet any of the required tests in 2022, it will not impact the tax savings they real-
As a founding partner at Anderson Business Advisors & Law Group, Clint Coons is a real estate asset protection expert and an avid real estate investor.
He wants to help every investor create a well-balanced plan so they can continue to grow their portfolio and have their capital and investments protected.
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