Learn About The Vacation Rental Tax Loophole

podcast_Amanda Han

By The Hospitable Team

Vacation rentals offer a unique investment opportunity, not just from a revenue perspective but also in terms of tax advantages. That’s exactly why the new Hospitable Hosts episode explores how you can optimize your investment’s tax efficiency. 

We unveil the benefits of understanding and applying specific tax loopholes and offsetting techniques tailored for short-term rentals (STR) with the help of no other than Amanda Han, Tax Strategist and Managing Director at Keystone CPA

For those curious about more tax tips, Amanda was also an expert at our Tax Savings Masterclass. But we’ve got looots of tax questions, so we’ve invited Amanda back for a chat. 

Discover how to make the most of the short-term rental tax loophole, ensuring your investment works in favor of your tax bill in our latest Hospitable Hosts podcast!

Do you prefer to read the highlights? We’ve got a summary of the key takeaways below.

The Overlooked Deductions You Forget to Write Off

While many of our hosts are proficient in claiming deductions for direct property-related expenses such as mortgage interest, property taxes, and management fees, Amanda emphasizes the potential in exploring beyond the obvious:

“The tax code is pretty complicated, right? And although we like to talk about tax write-offs and how much money people can save on taxes, when I meet investors, people are always super confused about ‘What can I actually write off?’”

Amanda points out several commonly missed opportunities that could make a considerable difference in your tax bill:

  • Mixed Use Expenses: Many investors overlook the business portion of expenses that have both personal and professional applications. For example, a laptop used for managing properties qualifies for a deduction based on its business use percentage.
  • Home Office Deductions: With most STR investors operating from home offices, “you should be claiming the home office expense as well,” Amanda advises.
  • Car Expenses: This deduction is broader than most assume, covering not only visits to your STR properties but also trips to the bank, meetings with lenders, or real estate meetups — “document these business miles!” 

Amanda underlines the importance of diligent record-keeping and the awareness of applicable tax write-offs. “Just make sure you track it all… commonly missed tax sections is the foundation to having tax savings,” she concludes.

Stick to Short-Term Rentals For Tax Purposes

Vacation rentals hold a distinctive tax advantage over mid- and long-term rentals, especially for high-income earners. Amanda illustrates the unique edge of STRs, explaining, “Short-term rental is an asset class where you can potentially use all these creative deductions and write-offs to offset taxes. Not just from the rental income but also your W-2 income.”

This flexibility starkly contrasts long-term or mid-term rentals bound by stricter tax benefits criteria. Additionally, what sets vacation rentals apart is the absence of the requirement for real estate professionals. “We actually don’t care how many hours you spend at your job,” Amanda clarifies. Investors can lighten their tax load across various income streams if they meet certain participation hours in managing their STR. 

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Cost Segregation: STR Tax Loophole Explained

Amanda delves into cost segregation — accelerating depreciation on parts of your property, allowing for substantial tax savings over a shorter period — a tactic traditionally associated with larger real estate investments like apartment complexes or commercial properties. 

However, the tide has turned, making it an accessible strategy for individual STR hosts with one or two properties. “What we’re seeing a lot more is that it often still makes sense to do a cost segregation, even for those single-family homes and short-term rentals with one, two, or three properties,” Amanda underlines.

This transformation in cost segregation accessibility and affordability means even small-scale investors can now enjoy accelerated depreciation benefits. The key lies in balancing the cost of conducting a study against the potential tax savings. Amanda notes, “If it’s gonna cost me a thousand dollars, and I’m expecting to save $30,000 of taxes on it, then it definitely makes sense to do so.”

Delve deeper into leveraging the STR tax loophole — play the full episode.

Navigating the Tax Terrain with Expert Insights

Amanda explains how technological advancements have made cost segregation an affordable and viable option for small-scale short-term rental owners. From understanding how to properly track and document your hours for material participation to making informed decisions about the legal structure of your property ownership, the full episode is packed with actionable insights.

Are you ready to uncover more and optimize your tax strategy? Our podcast with Amanda offers a comprehensive guide on elevating your vacation rental investment game. Listen now!

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Masterclass-Amanda & Matt

Tax Savings for Vacation Rental Hosts

The latest Hospitable Masterclass with tax-saving experts Amanda Han and Matt MacFarland from Keystone CPA guides vacation rental hosts through the tax season with ease — whether it is the basics of correctly filing tax returns or identifying often overlooked deductions.

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