Own A Short-Term Rental?
Get the Most Out Of Your Investment Now!
Reduce Your Tax Burden
Short-term rental properties represent a lucrative investment opportunity, particularly for high-income individuals. They offer robust cash-on-cash returns and the potential for asset appreciation. Moreover, they serve as a strategic avenue for high earners to significantly reduce their tax liabilities.
Achieving tax efficiency in this realm demands the implementation of sophisticated tax planning strategies. Whether you're contemplating your first short-term rental property acquisition or already own multiple properties, the right short-term rental tax strategies have the potential to save you substantial sums in taxes over the years.
Effectively leveraging short-term rental properties to alleviate the tax burden on your W-2 income necessitates a specialized approach guided by a real estate tax advisor. At Shatley Accounting Group, we specialize in this area and boast a proud track record of assisting short-term rental property investors in minimizing their tax obligations while simultaneously growing their wealth.
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Key Strategies for Utilizing Short-Term Rentals to Alleviate Tax Burden
Investing in short-term rental properties provides multiple avenues for tax savings and wealth accumulation. An all-encompassing tax planning strategy should encompass these opportunities. In this guide, we will focus on the two most impactful strategies: leveraging your short-term rental for non-passive losses and implementing property depreciation.
Interestingly, when it comes to short-term rental investments, it can be advantageous for your property to show a loss. These losses can be employed to offset your W-2 income. It's crucial to understand that these losses don't necessarily mean you're actively losing money each month; instead, you're gradually depreciating your investment.
Utilizing Your Short-Term Rental Property for Non-Passive Losses
Understanding passive and non-passive losses is crucial for maximizing tax benefits. Passive losses occur when you're not actively involved in an investment, often seen in long-term rentals. While you can deduct these losses from your W-2 income, there are limitations, especially for high earners who aren't real estate professionals.
On the other hand, non-passive losses result from an investment where you actively participate, like a short-term rental property business. These come with more significant tax advantages.
To qualify as an active participant and ensure your short-term rental income and losses are considered non-passive, you need to meet at least one of the seven material participation tests outlined by the IRS.
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Depreciating Your STR Property to Reduce Taxes on W-2 Income
Depreciation is a helpful way to save on taxes with your short-term rental property. It spreads out the cost of your property over time. Normally, it takes 39 years to do this. But with a cost segregation study, you can speed up depreciation on various parts of your property, getting more tax benefits.
This study breaks your property into smaller parts that can be depreciated faster, like in 5, 7, or 15 years. These parts usually make up 20-30% of your property's cost and can create significant losses. These losses can be used to lower your W-2 income, reducing your overall tax bill.
When you add bonus depreciation to the mix, a cost segregation study lets short-term rental investors claim big deductions. In 2022, you can deduct 100% of the components found in the study in the year you buy the property. But remember, this bonus depreciation is set to decrease and disappear by 2027, so it's important to act now.
Collaborate with Experienced Real Estate Tax Strategists
Qualifying as a material participant in your short-term rental property and implementing advanced depreciation strategies are complex endeavors, and significant financial implications are at stake. To ensure success, it is imperative to engage the services of experienced real estate tax planning professionals. Whether you are in the process of acquiring short-term rentals or already own such properties, our advisory team at Shatley Accounting Group is here to assist you.
Contact our advisors today to gain further insights into how short-term rentals can be harnessed to reduce your tax obligations on your W-2 income.
