AirBnB investors and LTR investors, This is for you.

With year end coming up, we have clients reaching out about ways to reduce their tax bill. Many of you who own rental real estate are asking about the air bnb "loophole".

By nature, rental real estate is usually considered passive which means losses usually can only be used against other passive income.

W2 and self employment income is considered non passive which means losses from rental properties usually cannot be used to offset your w2 or self employment income.

Here's where the AirBnB "loophole" comes into play.

When you operate your rental as an AirBnB and meet the qualifications I'm about to explain, the IRS now considers this a non passive rental activity which unlocks losses that CAN now be used to offset w2 and self employment income.

And the best way to create massive paper losses is through a cost segregation study accelerating the depreciation in year one. If you purchase the right property, you can create big enough losses which I've seen completely wipe out w2 and self employment income.

Yes, if you make $200k at your job and have a $200k loss on your AirBnB, your taxable income is zero (provided that's your only source of income).

So, here are the two main qualifications:

1. Each rental period needs to be an avg of 7 days or less.

2. You need to materially participate.  There's 7 tests. You need to meet one. The two most commonly met tests are participating in the activity for more than 100 hours during the year and you participated at least as much as any other individual (including individuals who didn’t own any interest in the activity) for the year.  Or, you self manage the property.

If you can meet these qualifications, you want to run your property as an AirBnB and the investment / numbers make sense, this could be a great strategy for you this year.

Hope this helps. Let me know if you want to discuss further.