361. You Don’t Need 10 Units: What One STR Can Actually Do for Your Taxes with Jason Smith

Summary

Podcast Summary: Tax Smart Real Estate Investors Podcast

Episode 361: You Don’t Need 10 Units: What One STR Can Actually Do for Your Taxes
Date: January 20, 2026
Host: Hall CPA (Thomas & Alex)
Guest: Jason Smith (STR investor, Hall CPA client)

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Episode Overview

This episode demystifies the journey of acquiring and self-managing a SINGLE short-term rental (STR) and the surprising tax benefits that one well-structured deal can yield for everyday investors. Jason Smith, a client of Hall CPA, shares his experience of leveraging education, creative financing, and hands-on management to slash his tax bill, all while integrating the investment into his family’s lifestyle. The hosts and Jason also deliver actionable advice on deal-making, compliance, tracking hours, and maximizing both tax savings and personal enjoyment from your STR.

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Key Discussion Points & Insights

1. Why One STR Can Be Enough — Not Just 10 or More

• Jason’s Background & Motivation
  • Earned a stable income and prioritized traditional routes (retirement funds, investments).
  • With investments maxed out, turned to real estate to optimize taxes.
  • “It kind of hit me—I have a choice: send this money to the IRS or deploy it into real estate.” – Jason, [03:42]
  • Chose STR for its unique tax advantages amid phase-downs in bonus depreciation.

2. Overcoming Barriers to Entry

• Education as the First Step
  • Jason discovered Hall CPA’s podcast and took their STR tax course for deep dives into strategy.
  • Overcame initial overwhelm from success stories featuring multiple deals (e.g., 6-7 units in two years felt daunting).
  • “The combination of education, timing, and getting over that initial fear helped us take the leap.” – Jason, [05:31]

3. Creative Deal Structuring: Seller Financing

• How Jason Secured Favorable Terms:
  • With interest rates above 7% in 2024, negotiated directly with a motivated seller for a 4% loan with 10% down.
  • Added protections: balloon payment, appraisal clause, and adapted to IRS rules on minimum interest (AFR).
  • “I floated an offer: full asking price if they’ll hold the note at 4%. To my surprise, they said yes.” – Jason, [07:36]
  • Reworked details after discovering AFR rules, settling at 5.09% interest.
  • Tactic: Take initiative to educate agents and sellers—most deals will fail, but even a 10% success rate justifies trying. [12:42]

4. Self-Managing for Tax & Lifestyle Benefits

• Why Jason Chose to Self-Manage:
  • STR offered family utility: location near a lake, amenities the whole family enjoys.
  • “If I invest in the stock market, I can’t use the stock. With STR, I can use the amenities—and work personal time in with family fun.” – Jason, [16:19]
  • Used “14-day rule” strategically—limited personal days to preserve losses; repair/maintenance days don’t count as personal use.
  • “Know the rules so you can play with them. That’s why we chose to self-manage—it works for our lifestyle.” – Jason, [17:02]

5. Tax Compliance & Maximizing Deductions

• Material Participation:

  • Carefully tracked hours, exceeding 500 hours to meet IRS thresholds. Spreadsheets recorded time in/out, tasks, receipts, and mileage.
  • “It really doesn’t have to be complicated—track as you go. If you wait, you’ll forget and it’s a mess.” – Jason, [24:24]
  • Leverage logs from door locks and other smart devices to confirm time spent.

• Section 179 and Strategic Depreciation:

  • In 2024 (with 60% bonus depreciation), used Section 179 for additional write-offs due to property structuring.
  • “Five-year assets in nonresidential real estate, including STR, can qualify for Section 179 if in your own name or SMLLC.” – Thomas, [27:08]
  • Key: Losses from Section 179 are typically capped at business income, but personal ownership allows offsetting W2 income.
  • Result: $138,000 in tax loss, resulting in $30-33k in tax savings in one year ([29:08], [29:46]).

• Safe Harbor & Repairs Deductions:

  • Utilized de minimis safe harbor for expenses (items <$2,500 each), leading to ~$20,000 in material write-offs.
  • Did all repairs personally, boosting both deductions and qualifying hours for participation.

• Grouping Election for Late-Year Additions:

  • Reaching 500 hours opens the option to group properties, simplifying material participation on new acquisitions—handy for late-year deals ([31:07], [31:11]).

6. Operating Insights: Outperforming at Any Scale

• Hospitality Mindset:

  • Achieved “Superhost” status in under four months by focusing on guest experience and visible details (snacks, personalized notes, cleanliness).
  • “It really wasn’t that hard to outcompete the competition—attention to little details makes a difference.” – Jason, [20:12]
  • Stuck exclusively to Airbnb, optimizing listings and engagement rather than spreading thin over multiple platforms ([22:07]).

• SOPs & Automation:

  • Developed routines for common challenges (cleaning tips, smart home automation), and learned value of hands-on involvement for quality control.
  • “No one tells you about cleaning hair—mini shop vacs are a must. Doing it ourselves lets us spot problem areas.” – Jason, [32:10]

7. Candid Reality: Challenges and Lessons

• Biggest Challenges:

  • Self-management can be demanding; must prepare for guest issues, turnovers, and problem-solving.
  • Key systems: smart locks, remote thermostats, detailed checklists.
  • Lucky to have few problem guests; most stress is mitigated by preparation and systems ([32:10]).

• Strategic Reflection & Advice:

  • Best decision: working with a tax strategist early for ongoing planning ([35:26]).
  • Advice to newbies:
    • Educate yourself, then jump in—don’t let perfectionism paralyze you.
    • Analyze HOA/neighboring property rules before buying; break even is okay if lifestyle is part of your strategy, but don’t aim too low (“What if your worst-case scenario is a 20% profit?”—citing ep. 309 with John Bianchi).
    • Blend what you enjoy (family use, DIY work) with your investing.

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Notable Quotes & Memorable Moments

• On making the leap:

  “I had a choice: send this money to the IRS, or deploy it into real estate. … It can’t be that simple—turns out, sometimes it is.”
  — Jason, [03:42]

• On deal structuring:

  "I floated an offer: full asking price if they’ll hold the note at 4%. To my surprise, they said yes."
  — Jason, [07:36]

  “If there’s a 10% chance [seller financing] works, why not try? You only need one.”
  — Jason, [12:42]

• On self-management philosophy:

  "We could tie family fun directly into the rental—use amenities and treat cleaning or maintenance as a lifestyle, not a burden."
  — Jason, [15:59]

• On tracking hours:

  “Record as you go. If you wait, you’ll forget what you did and it becomes a mess.”
  — Jason, [24:24]

• On actual tax impact:

  "We created $138,000 in loss, which was $30-33k right off our taxes last year—money we put right back into the property."
  — Jason, [29:08]

• On guest experience and outperforming big PMs:

  “Property managers just can’t deliver the little details… it’s all about quick turns. Small touches set you apart.”
  — Jason, [20:12]

• On advice to first-timers:

  "Get educated and jump in—don’t get paralyzed. Our first property felt scary, but now, $750k+ feels less intimidating. Take the step; the path will reveal itself."
  — Jason, [38:38]

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Important Timestamps

• Jason’s backstory and “aha” realization: [01:36]–[05:31]
• Seller financing & deal structure deep dive: [06:55]–[11:48]
• Why self-manage STR & lifestyle integration: [15:59]–[18:02]
• Tax compliance basics & tracking participation hours: [24:07]–[25:51]
• Section 179 and safe harbor deductions explained: [26:18]–[29:46]
• Grouping elections & planning for multiple properties: [31:07]
• Optimizing STR operations & guest experience: [20:12]–[24:00]
• Dealing with challenges in STR management: [32:10]
• Strategic reflection, advice, and next steps: [35:26]–[38:38]

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Tone & Takeaway

The episode is candid, practical, and encouraging, breaking through the myth that investors need to own multiple units to see meaningful tax and lifestyle returns. Jason’s story—ordinary, relatable, and pragmatic—proves that education, creativity, and diligence in documentation can make one STR a tax game-changer. The hosts reinforce that compliance and proactive planning with experts remain critical, and that integrating investment into your life’s joys is not just possible, but optimal.

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For real estate investors, this episode is a masterclass in starting small, thinking strategically, and not overlooking the immense value one well-run short-term rental can generate—both for your bank account and your life.

Transcript

[Alex]

You're now listening to the Tax Smart.

[Thomas]

REI Podcast, the number one tax podcast for real estate investors.

[Jason Smith]

Your source for.

[Podcast Host]

All things real estate, accounting and tax. Here we reveal our secrets that can save you thousands in taxes, streamline your accounting process, and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors, and current clients on what strategies they use to grow their business and how they steer clear of Uncle Sam.

[Thomas]

Hey everyone, thanks for tuning in to this week's episode of the Tax Smart REI Podcast.

[Alex]

Today we're joined with special guest Jason.

[Thomas]

Smith, one of our clients here at hall cpa, to discuss his journey in his first year of operating his first short term rental and navigating the realities of self managing in order to achieve significant tax savings while remaining in compliance with the irs. We're going through all that and much more. Stay tuned. We'll be back in just one minute.

[Alex]

You've probably never found a real estate.

[Thomas]

Newsletter worth reading, and that's because we hadn't created ours yet.

[Alex]

The REI Daily is a newsletter you actually want to read whether you own one property or 100. We created this for you. Each issue delivers crucial tax saving strategies, legislative updates, as well as real estate market insights. Everything you need to stay sharp and.

[Thomas]

Ahead of the game.

[Alex]

Get the real estate and tax news that actually matters straight to your inbox. Subscribe to the REI Daily newsletter [e-mail] subscribe. That's it for now and right back into today's episode. All right, and we're back.

[Thomas]

Jason, thank you so much again for joining the show today. Would you be able to share with the listeners just a brief overview, background how you kind of got involved with the world of short term rentals?

[Jason Smith]

Yeah, absolutely. Thomas and Alex, thanks for having me. Super excited to be here and share my story. I imagine there's a decent amount of people who have a similar story to me of, you know, I've been lucky enough to have a career that makes a fairly decent income and you know, for the first 10, 15 years of or the last 10, 15 years or so, I have, you know, done the standard, like save some money, you know, put a little towards retirement. You know, that started as 3, 4, 5%. Every year that I'd get a raise, I would put another 2, 3% in and that's quickly bumped up to like, you know, 15, 20%. And then I started maxing out retirement savings there and so moved into the next zone is, you know, max out Roths. That happened fairly quickly and my Wife and I keep a fairly simple life. We have a fairly modest house. Alex, you and I have talked about this. I think we're both one car families. I walk to work, I ride my bike to work. If we ever had a second vehicle in our household, it was always paid for with cash. And so as income started creeping up, we were looking for other ways to reduce our taxable income. So this is our story of, of getting into our very first unit.

[Alex]

Yeah, I love that, I love that you are, you are outing me here on the podcast, right? I'm, I am a single car, single car family here. I, I actually love it. Our, our friends kind of, kind of make fun of us a little bit from time to time, but we've never had any issues with it. It's been, it's been awesome. So it has been awesome getting to know Jason, working with you as well. I, you're not, you know, to your point, you know, you don't have a hundred units under your belt. You got the one that you're rolling with here. You're coming off that first full tax year, let's call it, with the short term rental under your belt. What gave you the confidence, right, to move forward, to maybe change what you were doing? Because you just made the great case of, hey, I was doing all the right things. You know, you probably could have kept on that same path and had a great, beautiful retirement, you know, 30, 40 years down the road. What led you to make that change? The confidence to make that change and what maybe almost stopped you from going forward?

[Jason Smith]

Yeah, I think there was a little bit of a aha moment that happened for me a couple of years ago. And I was sitting there kind of thinking, you know, looking at our income, looking at the taxes that we were probably going to have to owe that year. And as I started peeling through the Internet and, you know, finding out about short term rentals, that light bulb went off of, wait. I kind of have a choice here. Like choice A is to take this amount of money and give it to the irs. Or choice B is I can take this amount of money and apply it to a piece of real estate. And I was like, it can't be that simple. Like, something feels off here. And then as I peered in, more and more got super intrigued by it. Got it. Super interested by it. I should mention that my, like, my day job has always had a through line of hospitality. I grew up around hospitality, around hotels, restaurants. So this was a little bit natural to me too. But yeah, like, I literally, I got on I stumbled upon hall cpa. I started listening to this podcast. I took the short term rental tax course that was offered and bought that package. My wife was on a business trip that week and I like, I crammed through the whole thing in like the first night or two, including all the other supplemental things, and got super intrigued by it. So then as I peered in and kept listening a little more, you know, one thing I love about this podcast is the diversity of things that you hear. And there's, you know, stories we heard, we heard a couple months ago or a couple weeks ago from Marty Guyer that, you know, he had this thing, he, he acquired six or seven rentals in two years and he was starting a new business every year. And some of that just sounded so overwhelming to me. So kind of in the beginning it was, it was a little too much. But, you know, I think I educated myself enough and my wife and then we like kind of took the jump, the dive in. I should mention that 2024 was when we acquired our first property and like, it wasn't the easiest year to get started in short term rentals. You know, that wave of COVID had already kind of come. We had 7% interest, we were down to 60% bonus depreciation. The real estate prices were still kind of hanging pretty high and there really wasn't that much inventory. So that's probably why it took us a little while to dive in. The combination of all those factors, you know, education, timing, and then just like kind of getting over that initial hump or that initial fear, definitely that wave.

[Thomas]

That wave that came and went. And then like when as bonus depreciation started phasing down, it seemed like short term rentals were getting less and less lucrative or less and less desirable as an asset class. At least that's what we started to see. And then with the return of 100% bonus depreciation, everything kind of started to come back full circle and the demand kind of spiked back up a little bit once people had that level of clarity. But shifting gears just a little bit here, actually we're still staying on the topic of deal structuring. It looks like I know you did another deal, one with 10% down, 4% interest, no bank involved. Seems like a lot of seller financing or subject to, as some people would call it. Would you mind taking us through a brief overview of how that deal came together?

[Jason Smith]

Oh, absolutely, yeah. I mean, this was our first deal and really our only one. So, like, this is our only short term rental unit. We were looking for properties again, it was 20, 24, 7%, interest rates above 7%. And as I was consuming all this content and getting educated, I did stumble across Pace morby and his sub 2 and seller finance stuff was always intriguing to me. You know, I didn't dive super deep down that road, but, like, kind of kept that in the back of my head. And as we started to look at different deals, I was super intrigued by it, because what we were starting to see in our area was, was there were properties that were starting to linger, and they had been on the market for 200 days. And I had a hunch that there might be some, like, motivated sellers, and didn't know if it would work or not. But we found this piece of property that we liked. I think it kind of slipped through the cracks a little bit, like, a little bit of a hidden gem. It was, you know, it needed a little bit of renovation. You know, it might've been priced a little bit high, higher than the market. You know, it kind of missed that wave for a second. And so I worked with our realtor, and I was like, hey, let's propose a seller finance deal. And the realtor was like, no way. That will never work. It never works. It's not a thing. Nobody would take that risk. Like, why would anyone do that? And I was like, let's just. Let's try it a little bit. And so this deal almost fell apart probably three separate times. So we floated an offer to the seller, and they were super skeptical at first. So then I, you know, wrote a little email to, like, kind of get, hey, here's the details. Here's what I'm thinking. Let me walk you through this. If it sounds good, let's continue conversation. And I threw out something crazy. I was just like, hey, we'll give you full asking price, and if you carry the loan with a 4% interest rate. And to my surprise, they said, yes, there's a lot of things that are buried in here. We. We did propose a balloon payment at three years. So, like, there was kind of a safety net there for them, for the seller. Like, they weren't holding this loan forever. And, you know, kind of another interesting part that I grabbed straight from Pace was we put in a clause that said if the property doesn't appraise for its full sales value in three years, the loan automatically extends to five years. So in the event of a real estate dip, we had a little bit of a safety net, too. And so they initially accepted, said, all right, sales price 4%. Good to go. We Started writing it up, attorney started reviewing it, and their attorney nearly killed it and said, no way. You know, we can't give a loan below applicable federal rates. This was a zone I had no clue about. I didn't know that the IRS has a minimum interest rate for certain private or family like loans. Is that a zone that you guys come across or deal with much or.

[Thomas]

Yeah, it's something we have to, we do come across that a lot. A lot of times people want to structure like zero interest rate deals. It's something very common, at least that I've heard in my experience. And then we always have to, like when we're, when we're talking to clients from a tax perspective, we'd say, wait a second, there's something called the AFR rate. Are you aware of that? And let's go pull the AFR rate and make sure that's in there. Because if you don't state an interest rate, the IRS will impute one for you based on the afr and you're effectively going to start paying a small, you know, usually a small tax on the payments that the seller receives. They're going to have to be subject to a small tax.

[Jason Smith]

So, so this was like, I had no clue about that. I didn't know it existed. I, you know, I just. Again, Thomas, you've been so good at like, hey, like it's good to get information off the Internet, but like, go double check it. Yeah, zero percent loans. There's a little bit more to it than just that. So in order to like, kind of keep this thing moving around, I came up with the idea of like, hey, let me like, move some numbers around. What if we reduced the selling price of what we agreed to? But we hit that AFR and at that point in time it was a 5.09% AFR. So we restructured it a little bit. The numbers came out the same for kind of both of us. So we ended up with a little bit lower selling price. Instead of 500, we came down to 485. We did the 5.09% AFR. And so we secured this loan in July of 24 while everyone else is getting 7% interest rates. It was super interesting. And so just for fun, I pulled up those rates yesterday. And so, you know, the current AFR is some. Has ranges somewhere between 3.66% and 4.55% today. So like, this is a technique and strategy that can be used. And I think that there's a lot of motivated sellers out there at this Place in time, see what happens in the future. But like I'm ready to give it another shot to see if I can sell or finance again.

[Alex]

Yeah, a couple, couple of things I want to follow up there.

[Thomas]

That was a lot, a lot to unpack.

[Alex]

That was awesome. So I want to mention right, the basically if you went to the bank, got a traditional mortgage, it was, you know, seven plus percent, right? And you were able to secure, let's call it five. Right? You were able to secure five. You're able to basically secure the price that you wanted and that they wanted as well. And then on top of that, from a tat where I being a tax podcast, I just looked, I won't give any numbers away, but you basically cut your tax bill in half for the year that you applied the short term rental strategy. So the outcome here is incredible. Right? To your point about the. I was going to ask you. The question I'm trying to get to here is do you see that same type of setup today? And on top of that, how that was your first deal, right? That was your first deal. It's not like you were, you know, sell, you know, doing seller financing forever. How much work, effort, energy did you put in to learn this stuff and can't. Is this repeatable by other people, you know, going to look for their first or second property?

[Jason Smith]

Totally. And like this is definitely repeatable. There's a lot of benefits on both sides of this. And so not every deal is gonna like. It's probably a small portion of deals that can actually work this way. But if there is a 10% chance of it working, like, why not give it a try? So like you might go to a couple properties or a couple sellers and it's just, they're not interested, they're not in a position to do it. But the person that is in a position to do it, you know, let's give an example of this particular property. Like, why would it benefit them? Why would they even consider it? Well, this property sat on the market for 200 days. This seller was ready to move on. You know, the kids have grown. This property had become a little bit of a ball and chain for them. The monthly HOA just kept coming in. There were assessments up and coming like it was, it was dragging on them is what I assume. So so now we come in and they get full asking price for their unit. There is a safety net there. Like they're holding the note. If something goes wrong with it, they get the unit back. What we ended up doing and setting up was that gave us a little more money to go start on renovations. So theoretically, if everything goes as planned, the property's worth more. So now they're sitting with a property that's worth more and they're getting mortgage interest as well. Like instead of us giving that money to the bank, they have become the bank. And so we ended up finding a way. This is, the sales pitch is like, hey, would you take $550,000 for your $500,000 unit? The caveat is, I just need terms, I need three years to get you that full money. Does that sound good to you? So, like, very interesting from their side, but from our side, like, super interesting too. Like, we had no mortgage application, no financing contingency. There was no proof of income, no tax history, no credit check, no loan closing costs. There was no appraisal. And then we ended up structuring this so that we put 10% down so that we could use the rest of that money to make improvements immediately and furniture, fixtures and equipment and things like that. It really was a crazy thing that I'm shocked that like more people don't try, but easier said than done. And it did take some finessing. It took a lot of education to the realtor, to the listing agent, realtor, to the seller. Like, like I said, it kind of almost fell through three times. And I had to kind of, I had to do the legwork to kind of bring it back.

[Alex]

Hey, real quick, if you've been a longtime listener of the show, then you.

[Thomas]

Know we give everything away for free.

[Alex]

From how to use the real estate professional status and the short term rental loophole to save tens of thousands of dollars on taxes and to upcoming tax changes. We don't hold anything back. And the only way we would help more real estate investors is if you rate, review and share the show. It just takes 15 seconds to leave a quick rating review or share with a friend who may find this information useful on their real estate journey. That's all for now. We'll dive right back into today's episode.

Yeah, I love that. Love that. And you did choose from a tax perspective as well. This is, this obviously going to help your situation here, but you chose to self manage that into your background. You love hospitality mentality, you know, love being involved in the, the property itself there. How did you make that work? Right? How did that look from a day to day, weekends, nights, and why did you choose to, to self manage that property?

[Jason Smith]

Yeah, this is, this is another zone that I think hasn't been explored that much of one of my favorite things about short term rentals compared to other investments is there is a host of other benefits that is kind of buried in there. If I go invest in the stock market, I can't go use that stock market for personal days. I can't use the amenities, I can't make a trip out of it. So one of the criteria that we were looking for when we were looking for a property, our family's a big water family. We like to be close to the water, we like to get on the water. And so we were trying to figure out a way to like, how do we combine our interest with getting in the water to this other investment. And so we looked for a property that was close to a lake. And then it also just started unfolding some of these other amenities, like I'll go and flip the house and do the cleaning and stuff and the kids can go hang out at the pool or play at the local arcade or you know, like there's other things that are benefited in there that I just found so intriguing. Now you have to be really thoughtful of personal use and you know those rules. You want to be super aware of that. But if you get into some of those details and like, I don't know, Thomas and Alex, some of the things that I like is like when you know the rules, then you know how to like use them and play with them. One of my favorite episodes that you've done was episode 300 was back in 2024 was that 14 day rule. And the personal use, when you know how to use this to your advantage, you can go and strategically make it a work trip or make it repairs and maintenance. That doesn't count as personal use days. So this kind of lent into. I know this is a long winded answer, but this lent to why we chose to self manage was it wasn't just because we wanted to self manage, it was because we could make a day of it and like, let's go get on the lake, then we'll go flip in the middle of the day, we'll get back on the lake in the afternoon and like it worked into a lifestyle that we were trying to work toward. Does that make sense?

[Alex]

Yeah, I, I love that. Thomas, I'm gonna have you hop in here with the personal use. The tax side of, of the update here. But that's, that's exactly. I can't take credit for this one because you already had the property here before you, you came to me. But that is exactly what I hit on with clients. Right. Is like if we do go down the short term rental strategy route. The tax benefits are probably gonna be there for you. Probably for sure, right? It's like, how can we make this a long term strategy buy? Where do you guys like to travel? What do you like to do? Let's start there, right? And then build out from there. So, Tom, I'll let you hop in on the personal use and why we say no personal use. That first.

[Thomas]

Yeah, yeah, yeah. So. So there's nothing wrong with personal use. You have to be aware of the rules. And to Jason's point, once you know the rules, you can have a greater degree of control and how you kind of. How you kind of set the stage for yourself and how you utilize those rules. But long story short, if you have a four, if you have a property with an average period of customer. Excuse me, almost went through the short term rental thing right there. Long story short, under section 280A of the Tax code, it says that if you have a property that use more than 14 days personally, then it is considered a residence. And when it's a residence, you cannot take the losses. The losses are capped effectively at the income that that property generates, which doesn't allow you to create a loss that you can take against your W2 or your active business income. So maintaining 14 days or less of personal use is critical. But also the Jason's point, if you do work there, if you are working at the property for more than four hours day, or on a substantially full time basis, that does not count as a personal use day. So that's something else to have in your tool belt when you're kind of structuring your trips and how you want to plan to use that personally. So knowing those rules are certainly critical to knowing how things work, but also kind of shifting gears just a little bit here. I know that a lot of people who are investing in short term rentals, of course they want the tax benefits. That's ultimately in many cases, a motivator for going into that asset class. But also, you do typically want to turn a profit. I would imagine most people want to do that. And I know that, you know, on Airbnb, there's the very coveted status of superhost. Right. And what all the benefits of being super host allows you to do in terms of getting your property listed and getting it seen by the right people. And I know you hit Superhost, the top 1% listing within four months, you know, what would you say? Maybe your top two to three things that helped you get there?

[Jason Smith]

Yeah, this I think we kind of stumbled into and got lucky. So like, that's my first disclosure. And like, I'm not an algorithm expert. We didn't do anything crazy, but like, little details of like, just paying attention to a great guest experience. It really wasn't that hard to out compete the competition. So, like in our area, there's not many hotels. Like, it is a very tourist destination. You know, think lake and ski resort. So like, that rental market drives the whole community. So because of that, there's, you know, a couple big property management companies, and those big property management companies just cannot deliver the little details. It is all about turning and flipping and, you know, getting the unit flipped and ready for the next person. So when we slowed down a little bit and paid attention to little things like snacks and welcome notes, that really was the basis for it. The other thing that I, again, I'm not an expert and I think we kind of stumbled upon was a strategy that the property management companies do is use all of the platforms. So like, you know, of these property management companies use multiple sites to drive revenue, you know, drive rental listings, including their own platforms. So one thing that we kind of stumbled upon by accident was we only stuck with Airbnb. One of it was just to be simple. And I think because of that, and we put energy into it, you know, did all the things that you got to do. You got to have photos and you got to have good descriptions and have it accurate. But like, because we were engaging with it so much, we kind of zipped up to the top 5%, you know, top 10%, top 5%, top 1%. And I think part of that is because we were, you know, it was, it was getting lots of hits within that one platform. I don't know how to describe that.

[Alex]

But like, it's funny you say that because I've heard both ways, right, and oftentimes what I hear is when somebody gets a short term rental, right, they're like, I'm gonna, you know, blast out to every possible channel, which very well could be a great strategy. But usually like what I hear from like the, like professional people are like in books and whatnot. Like, it's, it's like I'm going to post on just Airbnb and I'm going to optimize Airbnb and I'm going to get all the listings that come to me on Airbnb. So that's, that's kind of what you're saying, I think from that point of view, which, which makes a lot of.

[Jason Smith]

Sense from what I've heard, yeah, there's, there's something there with the algorithm of like when you put days available and then it books somewhere else and then you come and manually take days away. I think there's something there that, you know, again, like we're more engaged or committed or. I don't know how to, I don't know how to describe it, but someone knows this. But anyhow, whether, whatever it was just being, staying consistent and then paying attention to little details. I mean we are obsessive about how clean the unit is and you know, making sure that it's like those little details are there. Of like, all right, there's a fireplace and you know, fire pit. We make sure there's firewood stocked and like super easy to light a fire and little s' mores kits and things like that. Those big rental companies are not able to keep up because we're just, we can pay attention to the little details.

[Alex]

No, love that.

[Thomas]

Yeah, so yeah, we get that a lot. You know, one of my buddies, he has a, you know, pretty large portfolio and he has always said the property managers are never going to take care of your stuff the way that you want to. Right. And that's just in a long term rental portfolio. And then we had Sour and Annette on from thanks for visiting and they were so had an emphasis on this is a hospitality business. All those little details matter in a hospitality business. So it just goes to show that the devil's in the details. And sometimes you have to realize, hey, no one's going to do it as good as. It's a sweeping statement, but oftentimes people in that space are not going to do it as good as you would do. So.

[Alex]

Awesome. Let's, let's go to the tax. The fun, the fun side of things. Right. The items we'd like to talk about here. You intentionally.

[Jason Smith]

Right.

[Alex]

Tracked your time and you did get to. You exceeded 500 hours of material, space and time that, that first year. For listeners who, you know, are maybe intimidated by it, there's things that count that don't count. How to track it, you know, how do I be prepared for an audit? What does doing it the right way look like since you crushed it?

[Jason Smith]

Yeah, I mean this was like to me almost too simple of like just record it simply like as you do it and go along is so easy. Like it's, it's the most simple spreadsheet. It has time in timeout details of what we did. If we reference to anything like receipts or whatever, you know, if we went shopping at Lowe's. We do that. We track our mileage all at the same time. It, like, it really doesn't have to be overly complicated. And then we had other tools that, like, help us a little bit too. Of, like, the door locks have a log on them. So now, like, if I forgot to enter something, I can go back to the log, go, oh, we got there at 12:17, and we left at 3:45. Great. Super simple tools. But, like, I have even caught myself of, like, if I don't put it in for two or three days or, you know, a couple weeks, then you start. You instantly forget what you did, and it just becomes a mess. So, like, my best advice is, like, just do it. Do it in the moment. Get in the habit of doing it. And we had a substantial number of repairs and maintenance in that first year. So we were neurotic about how to keep it and track it and just wanted to make sure that we were dotting our eyes and crossing our T's. Because if we ever got into an audit, we want it to be so easy to just hand over the records and go, yep, we were there. And here's the proof. And we have a receipt from Lowe's to prove that we changed the light bulb. Like, it was really just that. That simple.

[Thomas]

Yeah, we always get. We always get questions on that, like, how do you track other people's times? It's great to hear, you know, a good case study and how someone actually did that. So, you know, I know. You know, this is an interesting one, right? So we talk a lot about 100% bonus depreciation here on this show. But as you mentioned at the top of the episode, when you acquired it in 2024, we're at 60% bonus depreciation. And, you know, you ended up using section 179 strategically in this case, when you were working with Alex. Would you mind kind of breaking down how that all came about?

[Jason Smith]

Yeah, I'm. I'm going to defer to you guys instantly. But the. You know, it was 2024. We had 60% bonus depreciation. I think that you were discovering inside your firm that there are certain situations where commercial property can use section 179. And so I don't even know what we fully did. I know there was an episode on it. The episode I have it written down was 290 that was like diving into an alternative use.

[Alex]

So, yeah, and I think Tom was really spearheaded this as well. But, yeah, we were able to, you know, figure out that those Five year assets, those personal property assets in non residential real estate, which would include short term rentals. Right. Are we are eligible to take section 179. Now that's super high level, Tom. If you want to add to that, if you have.

[Thomas]

Yeah, yeah, yeah. Long story short with section179 is that if you're an individual and you have your business, in this case a short term rental in your individual name or through a single member llc, you are the same taxpayer. And long story short with the section 179 rules is it allows you to take the losses in that case. Normally the deduction for section 179 is capped at the amount of income that your business generates. So if you're a partnership or an S corporation, that does not flow through to your 1040. So you cannot take the loss, if you will, against your W2 income or what have you in that case. But if everything is under you as an individual name, long story short, you can do that. So it is something you use strategically and something that frankly we do not talk enough about on this show. But again, that's why you work with the tax strategist, because all these things are more nuanced than meets the eye, right? It's not just all about what people say on the Internet. And that goes for us too because there's a lot of details that go on behind the scenes that you may never hear about on the Internet.

[Alex]

So and the main reason why you can use a if it's on your personal return is because let's say you have a W2, right? We have to have other income. But in your case, like a W2 income, right, that goes on your tax 1040. That is what we're able to utilize as quote unquote. We're using air coats here, me and Tom a couple times, business income. And we're able to utilize Section 179 to create a tax loss at your rental. So really, you know, it'd be 23, 24 and maybe if you put your property in service right in January of 25 and we're under the old bonus rules, that is where the Section 179 rules come and would be a big player for you now going forward with 100% bonus, it's going to be more rare. We can go down that rabbit hole a different episode. There are still advantages to maybe using it sometimes, but not not what we want to dive into too much here today. I did steal some thunder here. I did mention you cut your tax bill in half. It generated roughly $138,000 tax loss for you between the section 179, the bonus, utilizing some safe harbors de minimis and such. If you don't mind just speaking to that piece there, especially maybe the safe harbor piece, Getting this thing up and going, what that looked like for you, really be helpful for our listeners.

[Jason Smith]

Totally. As you said, we created $138,000 in loss, you know, at our tax bracket. That was somewhere in that 30 to $33,000 of tax savings, which essentially I viewed as like, let's take that money and like, put it directly in. We did have repairs and, you know, maintenance in that first year, especially getting it up and ready and things like furniture, fixtures and equipment. And I think, gosh, I think almost all of it was de minimis because, you know, if it was a piece of drywall, like, there was, because de minimis is 2500. I don't know what the number is.

[Alex]

2500.

[Jason Smith]

And it's all individual pieces. So, like, one sheet of drywall is less than 2500. One, you know, electrical plate is less than 2500. So, like, all of those things started adding up. And I think we had probably 20,000 or so in repair materials. We did all the work ourselves, too, on that, which is, you know, an aside. I enjoy that. Home repair remodeling is something that I, like, got into as like, just total aside from my day job. And so, you know, we weren't doing anything crazy. Little bit of drywall stuff, you know, light, electrical, painting, cleaning, things like that. The time added up actually a ton. You know, like we said, we had over 500 hours in that first year between me and my wife. And so we didn't set out to do 500 hours, but, like, just kind of got there. And an interesting door that opens up at 500 hours that we haven't spoken about today is it really does open the door to a grouping election, which we didn't take advantage of. But a really interesting thing of, like, if we wanted to add a property late in the year and we had that 500 hours already, it would have been really easy to add a property in November or December is another thing that we're kind of keeping in mind as we go into the future.

[Thomas]

That's a really good point. I don't think a lot of people think about that like that.

[Jason Smith]

Right?

[Thomas]

Like, if you get the 500 hours, you don't. Doesn't matter how much time anybody else spends. And on top of that, you can group your properties together so if you did acquire something at the year end, you don't have to worry about the material participation test on that late stage property you acquired thanks to the grouping election. So that's really good insight to note there. Hopefully some people can take away some gold nuggets from that.

[Jason Smith]

And that was an Alex one that we were discussing too because we have our primary residence and you know, at a point in time we were playing with the idea of like do we take our primary residence and like plug it in toward the end of the year to do that? Now we, we didn't actually pull that strategy off this year, but definitely something that we are keeping in mind for the future for sure.

[Thomas]

So we know it's not all joy. Right. With a short term rental there are certainly things that you don't hear about on social media, the things that nobody talks about. So after dealing with all the leaky toilets, turnovers and just general guest issues as you've had especially as you self manage the property, what are the biggest systems and things you put into place to help you kind of manage all this?

[Jason Smith]

Sure. In general I just wanted to state that like we really haven't had that many issues which we feel really lucky about. We've, we've only really had one issue with a guest out of, I don't know, 30 stays last year. But there are little things there. Nobody on the Internet tells you about cleaning hair. Hair is a nasty thing that you got to figure out how to deal with. And I feel like I could write a whole sop on like how to clean bathrooms now with little tips and tricks we have of like a little mini shop vac is my best friend in the bathroom. It's the first thing I do. Clean hair on beds and bed frames and things like a lint roller is a great thing. No one talks about these or at least maybe they're not hitting my feed. But there's things like that of like the less sexy parts. I will tell you the, you know some of the things that have really helped us are some of the automation door locks that automatically sync to Airbnb is so easy. Us being able to control thermostats remotely is so nice and then just kind of, you know, there's a bunch of little things like that. But I will say that like us getting in and doing the work ourselves really gives us an insight of like what needs to be done, how it should be done, how much time it should take so that if we ever hand off to a property management or cleaning, we can reasonably Expect the like, problem areas. I can tell you the two or three zones in our unit that we pay attention to every time we flip it. So that's why I enjoy it. And again, the big reason that we did it is we had a kind of ulterior motive too. Like we were trying to get to the water and get to the lake. So this, you know, doing a little cleaning while we get a day at the lake was, you know, easy for us to build into. It worked for us, it worked for our family.

[Alex]

Love that you're, you're, you know, watching hotels maybe gain some ground back from, from short term rentals, if you will. I believe you're still very bullish though, on this asset class. Where do you see yourself? I know you have some things in the works, but where do you see yourself going from here? And especially over the next handful of years, I know you maybe have a move coming up here sooner rather than later. So what, where do you see yourself going and where do you see the market going here in general?

[Jason Smith]

So, you know, again, I'm not an expert on anything. I know our little market in detail. Like our little market, there's not many hotels in our area. It is driven by like rental homes and property management companies. So for our area, it is so easy to out compete these big management properties. The other thing that we're starting to see is like there was a wave of people that got into Airbnb during COVID times that realize how much work it is and they're starting to drop off. So like our bookings have continued steady or even going up and now we're getting repeat customers because we've been established for a little while. So, like, I feel really solid on our area. Obviously I can't speak to other zones or other markets, but this is definitely something that is intriguing to us and we're going to continue looking into.

[Thomas]

Cool. Cool. It's been a journey and it seems like you learned a lot over that time and you shared a lot of great wisdom here on the show and hopefully some of our listeners will be able to take that where they're currently, currently operating short term rentals or about to jump into the game, or considering jumping into the game. But if you had to go back and give yourself one piece of advice before buying that first property, what would it be and why?

[Jason Smith]

Yeah, I would, I would definitely start with like what we would do again. And what I would definitely do again is getting tax strategy with Alex that has, you know, we've talked a lot about short term Rentals today. And that was one piece of the strategy. But oh my gosh, we have so many other areas that we focus on. You know, I have some 1099 income. We've set up an S Corp. You know, we've looked at using vehicles strategically. We can put our kids on payroll. We've explored Augusta rule with some of my business work, primary residence strategies, you know, tax, home office. I can go on and on of like so many things that we've set up. And so, like, number one is great planning. You know, number two, if we look at for another property in our particular case, I would be super aware of like, HOAs and neighboring properties. We never got into any challenges with our hoa, but there were times where we were going, eek. Like, I'm not sure if we want that, like the threat of something going wrong there and that being kind of out of our control. Again, this is in our, like, kind of situation. And then there was an episode that I love that you did probably a little over a year ago. I think it was episode 309 was John Bianchi. He was saying that like, instead of aiming for break even, which is honestly what we were aiming for, like, that was our goal, like, aim for something better. He said something along the lines of like, if the worst case scenario is a scenario that still works, like, do that. Like, what if your worst case scenario is making 20% profit? So like, as we move into the future, definitely continuing that analysis, we knew exactly what we were getting into. But our, like, our target was pretty low. Like break even target so that we could use the other amenities and, you know, lifestyle was part of the plan. So our acquisition went as part plan, but aiming up a little bit higher. And then we continue to like, blend what we enjoy. So I would do that again of like, I really enjoy repairs and maintenance and we really enjoy hospitality. We like doing this. You know, I haven't ever seen anything in the IRS code that says that the kids can't enjoy the arcade while you're cleaning the unit. So like, putting some of that in is, is also part of our strategy. One kind of line or piece of advice that I have for people is like, get educated and like, learn and understand. Know what you're getting into. But also don't let that paralyze you and like, jump in and get going. When we first started this, we, we were looking at this, you know, $500,000 property was so big we couldn't even wrap our heads around it. It was more than our primary residence and it was a big scary step. And now a year and a half into it, you know, we're for our next property. We're looking in the, you know, 750 to $1.5 million range is less scary kind of all because we got started. You never know what challenges you're going to find. So, like, get in and learn them and get through them and you know, if there's a supportive community like this group, oh my gosh, it's like go in and get, do it and make some mistakes and learn from them.

[Thomas]

Yeah, absolutely. They say that a lot like, you know, the path unfolds as you take the step forward. So you've got to take that first step and, you know, one step at a time. And oftentimes that, you know, the path, the next step will always unveil itself. And sure enough, even in my own personal situations I find myself in, whenever I follow that advice, I'm like, oh, it really wasn't that big of a deal.

[Alex]

Right.

[Thomas]

You know, once you start taking those steps forward. So definitely great advice. You know, Jason, wanted to thank you so much for coming on the show today and sharing your knowledge with our listeners. We'll have to have you back for the next one after that next acquisition and see what insights you have there. But yeah, thanks again for joining us and for everybody who's tuning in today, thanks as always for listening to the Taxpayer REI Podcast. If you found this episode useful, go ahead and leave us a review on Apple, Spotify, wherever you're tuning in. Also, if you have anybody considering jumping into the game of short term rentals or maybe you're on the fence, go ahead, share this episode with somebody and you might just help them on their journey. So thanks again for tuning in and we'll catch you on next week's episode of the Taxmart REI podcast.

[Alex]

The TechSmart Real Estate Investors Podcast is for general information purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. Information on the podcast may not constitute the most up to date legal or other information. No reader, user or listener of this podcast should act or refrain from acting on the basis of the information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Use of an access to this podcast or any of the links or resources contained or mentioned within the podcast show or show Notes do not create a relationship between the reader, user or listener of the podcast and the host, contributors or guests. Any mention of third party vendors, products or services does not constitute an endorsement or recommendation. You should conduct your own due diligence before engaging any vendor. For more information, reference the show notes or description of this episode.

[Podcast Host]

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