Leverage IRS Code: Reduce Taxes with Short-Term Rentals

Tax season can be a daunting time for many individuals, with the pressure of maximizing deductions and minimizing tax liabilities weighing on their minds, and rightfully so (the tax code is wildly confusing).

The strategy written about on this site is very specific.

As with many things, however, it's not about how many things you do, but how many things you do well.

In this situation, the 'hallway is narrow, but it goes far.'

What is meant here is that by owning a short-term rental and operating it in a short-term fashion, you get to bypass many of the drawbacks of 'passive' earning activity.

What that means in real person speak? Your deductions aren't limited to passive income (ie. rent income) and your deductions can actually be used to offset income from a normal W2 providing job.

There are numerous caveats that are required in order to capitalize upon this immensely powerful tool, and over the next days/weeks/months/years I will be expounding upon exactly how to do this, in very fine detail, so you can do it too.

What will this mean for you? Let's walk through a simplified example.

If you have a W2 earning job and you're paying the regular tax rate (for argument's sake let's say you have nice, strong income of $100K and you are taxed at 30%, which is roughly the expected tax rate) and you have a home that you're operating as a short-term rental.

Under normal conditions without a short-term rental property (with several assumptions but we're simplifying here for demonstration purposes) you'll be paying $30K in taxes, ouch. And gross. It hurts to lose such a large percentage of income, especially if you don't have to.

Now, if you own a short term rental property, you'll be able to deduct likely somewhere in the 10-15% of the purchase price of that home, $20-25K in 2024 (the Tax Cuts and Jobs Act changes each year in terms of bonus depreciation which is the prime mechanism at work here) which translates to $6,000-$7,500 less in taxes you have to pay. Cash money you get to keep.

This is high level summary of the topic and again, there are rules that must be followed in order to qualify for this treatment, but this is the name of the game. Email me at brian@earningshieldcpa.com and we can start a conversation to get you saving this year.

This is not a strategy most people can just elect at the end of the year. So let's get going now.