367. The Short-Term Rental ‘Loophole’ That Didn’t Work for This $25M Business

Summary

Tax Smart Real Estate Investors Podcast – Episode 367

Title: The Short-Term Rental ‘Loophole’ That Didn’t Work for This $25M Business
Hosts: Tom (C), Nate (D)
Date: March 3, 2026

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Main Theme and Purpose

This episode is the first installment of the “In the Wild” segment, where the hosts break down real-world situations encountered by Hall CPA’s clients—specifically, a $25 million dealership business trying to optimize tax outcomes via their operating company, real estate holdings, equipment rentals, and short-term rental investments. The hosts dissect what went wrong with the attempted short-term rental tax strategy, highlight lost opportunities in depreciation, and provide actionable advice on navigating business, real estate, and vehicle deductions.

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Key Discussion Points and Insights

1. Client Overview and Initial Goals

• Scenario Setup:

  • Long-operating dealership business, ~$25 million in annual gross receipts (02:23)
  • Owns the real estate used in the dealership
  • Also has an equipment rental business and two short-term rentals bought in 2025
  • Three partners—one active operator, others are passive capital partners

• Main question: How can they best structure their businesses to minimize tax liability? (02:23)

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2. Leveraging Real Estate in an Operating Business

• Grouping Opportunities:

  • If you own both the business and the real estate, you can group them for tax purposes to use real estate losses against business income (04:54)
  • Structuring Advice:
    • Operating business and real estate should have identical ownership (06:24)
    • Use the “Dash 4 election” (Treasury Reg. §1.469-4 or similar), or have the operating company own the real estate directly
    • Must make the grouping election in the first year real estate is acquired—otherwise, amending returns may be necessary and costly (06:34)

• Action Step: Consult a qualified tax advisor before or during acquisition to guide correct structure and elections (07:29)

Quote [06:34]:
"The only issue that exists is you have to make that grouping election the first year—that’s the year you buy the real estate. If you don't...you might have to go back and amend the tax returns." — Nate

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3. Short-Term Rental Strategy — Why the ‘Loophole’ Didn’t Work

• Requirements for Loophole:
  • Must average 7 days or less per customer stay
  • Must materially participate—typically self-managed, esp. in first year (08:24)
  • Using a property management company is a major red flag, often disqualifying for material participation (08:24)

Quote [08:24]:
"If you have a property manager, you’re deemed not to be materially participating. So you’re fighting an uphill battle." — Tom

• Placement in Service:
  • Property acquired in 2025 but no bookings until 2026 — thus, can’t claim deductions in 2025 (09:46)

Quote [09:46]:
"In order to use the short-term rental loophole...you need to actually have guest stays." — Tom

• Listing Is Not Enough:

  • Merely listing a property on Airbnb or VRBO does NOT count as placed in service for STR loophole (11:55)
  • Must have genuine guest stays to establish average period

• Fair Market Rent & Personal Use:

  • Watch out for underpriced stays to friends; significant discounts can be flagged as personal use (13:36)
  • Must avoid personal use if strategy hinges on business qualification

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4. Vehicle Deductions for Multi-Business Use

• Qualifying for Bonus Depreciation:

  • Use vehicles over 6,000 lbs GVWR—SUVs, trucks, even luxury (e.g., G-Wagon, Lamborghini Urus) (14:46)
  • Must be used >50% for business

• Tracking and Allocating Miles:

  • A “business mile is a business mile” across all legitimate business activities (dealership, STRs, equipment rental) (15:43)
  • Must distinguish commuting vs. business trips; home office can change what’s deductible (17:10)

Quote [15:43]:
"A business mile is a business mile. It doesn’t matter which business it’s for—it's a business mile, in my personal opinion." — Nate

• Bonus Depreciation vs. Section 179:
  • Bonus depreciation is often preferable as it can create or increase a loss that can offset other income (17:34)
  • Section 179 can only bring a business to zero taxable income, not generate or increase a loss

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5. Major Missed Opportunity: Equipment Bonus Depreciation

• What Happened:

  • Client’s equipment rental business purchases millions in equipment annually
  • Elects straight-line depreciation every year, consistently opting out of bonus depreciation (18:32)

• Why It's a Problem:

  • Results in significant unnecessary tax payments—bonus depreciation is especially advantageous for high-income businesses (19:50)

Quote [20:46]:
"...paying hundreds of thousands in taxes every single year...and they have all this depreciation that they should be using...but they're not." — Nate

• Action Step:
  • STOP electing out of bonus depreciation unless there is a clearly understood reason with advisor support (22:22)
  • If told to do so, always ask for an explanation and get a second opinion

Quote [22:22]:
"If someone is telling you to elect out of bonus depreciation, get a second opinion or at least get really clear on why they're doing it." — Tom

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6. Key Takeaways and 3-Point Plan

Bullet-pointed by Tom at 22:47:

1. Short-Term Rentals:
   • Ensure average stay is 7 days or less with fair market rate guests
   • Self-manage property in first year to qualify for loophole deductions
2. Equipment Leasing & Depreciation:
   • Stop electing out of bonus depreciation; claim it annually
   • Confirm CPA advice and seek second opinions when in doubt
3. Business Real Estate Grouping:
   • Review whether grouping election was made at acquisition
   • If not, explore amending past returns to maximize loss offset potential

Quote [23:29]:
"Please stop electing out of bonus depreciation moving forward...just stop doing it right and get a second opinion." — Tom

Most impactful missed opportunity:

• Equipment bonus depreciation—likely costing client hundreds of thousands in tax savings

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Notable Quotes & Memorable Moments

• [06:34] Nate: “You have to make that grouping election the first year… It can be painful if you don’t.”
• [08:24] Tom: “With property management you’re fighting an uphill battle.”
• [09:46] Tom: “You need to actually have guest stays… It wasn’t placed in service until 2026.”
• [15:43] Nate: “A business mile is a business mile. It doesn’t matter which business it’s for.”
• [20:46] Nate: “…paying hundreds of thousand[s] in taxes every single year because… they’re not [using] all this depreciation.”
• [22:22] Tom: “If someone is telling you to elect out of bonus depreciation, get a second opinion…”

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Timestamps for Important Segments

• 02:23 – Case setup: dealership/equipment/STR structure
• 04:54 – Grouping real estate and operating business for loss offsets
• 06:34 – Why the grouping election timing is critical
• 08:24 – Short-term rental loophole: requirements and property management risk
• 09:46 – STR placed in service rules; why bookings in 2026 failed 2025 tax planning
• 11:55 – Why listing isn’t sufficient for placement in service (Moreno v. Commissioner)
• 13:36 – Setting fair market rent and avoiding personal use pitfalls
• 14:46 – Vehicle deduction tips: bonus depreciation and business mileage tracking
• 17:34 – Bonus depreciation vs. Section 179 deduction
• 19:50 – Millions in equipment: why electing straight-line depreciation is a tax mistake
• 22:47 – 3 actionable takeaways for the client (and listeners)

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Tone and Language

The hosts maintain a direct, practical, slightly conversational tone layered with clear, actionable tax guidance. They repeatedly emphasize the importance of proper structuring, advisor consultation, and taking full advantage of available depreciation. The tone is serious but approachable—focused on helping listeners avoid costly mistakes.

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Summary Takeaway

If you operate a successful business with real estate, equipment, or short-term rentals, the right structuring and elections can save you hundreds of thousands in taxes each year—don’t leave money on the table due to overlooked elections, poor CPA advice, or misunderstanding IRS requirements, especially around bonus depreciation, real estate grouping, and STR loopholes.

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For more details, listener questions, or tax planning consultations, Hall CPA encourages contacting their team directly (see show notes for links).

Transcript

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[B]

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[C]

this week's episode of the Tax Smart REI Podcast. Today we're introducing a new segment of the show. It's called in the Wild segment. And it's going to be situations that Nate and other people here at whole CPAC with investors as they go through their journeys. And we're going to be breaking down their scenario, what they could be doing, what they should be doing, mistakes that they may have made, opportunities they can capitalize on. And in today's episode, we're going to be going through a dealership business who actually also owns the real estate that they operate out of and on top of that, short term rentals. So we're talking about how all this fits together and how they can best strategically put themselves into position to maximize tax savings while minimizing risk for their situation. And we'll be diving into all of that in just one minute.

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[C]

All right, and we're back. And again, today is the first segment we're going to be doing of the in the Wild. So Nate, why don't we just kind of like jump right into this? Why don't you just give us the setup? What is going on right here with this particular taxpayer?

[D]

Yeah, Tom, I appreciate that. Yeah, I'm looking forward to this new segment that we're doing. Right. Hoping it like just brings like some real life situations of real color to all the listeners out there. And so someone reached out to me and kind of gave me a situation. Obviously we're changing some of the stuff, right Tom, this is not like the exact scenario, but it's going to be something that we think is legitimate and that actual business owner has run into and face.

[C]

Yes.

[D]

So gave me the call. It's a dealership business. They have been in operations for like over 20, 30 years. So they've doing awesome. They've got 25 million in gross receipts. So obviously they're getting crushed on taxes every single year. And so they want to look for opportunities to work on this and try and figure out how they can pay less taxes. Right Tom? Like that's obviously what they want to do. So they have the dealership business of course, because it's like they have a lot of equipment. They also have an equipment rental business on the other side and one of the partners, right, the one that is actually running and operating the business, there's two other partners. They are just more like capital investors. They're not actually like running the day to day of the operations. But he's also, he's like, man, I'm trying to find other ways. So he then purchases two short term rentals in 2025. Hey, heard about short term rental strategy. Trying to find ways to reduce his taxes. Right Tom, what are your initial thoughts after you hear that situation right there?

[C]

So he's got a dealership business that he's operating out of, that he owns the property he's also operating out of and two short term rentals. So there's a few things that come to mind right here. A short term rentals, we can make sure he takes good advantage of those, but they might not even be necessary for his situation because as a, as a dealership business he can a write off the real estate if structured properly, which I'm sure we're going to go through on today's episode right off the real estate that he has associated with his dealership. And he's also could write off equipment and other types of property that he has within his operating business. So short term rentals while certainly viable for him as well. I'm wondering if those are even necessary, but I guess we'll unpack this as we go here.

[D]

Yeah, Tom, that's a good point. Right. And like let's not forget about the equipment rental business too, right? Whenever we look at these types of situations, right? Whenever, like looking up over and trying to look down, we're always trying to ask the question, is it like where can we find depreciation?

[C]

Right.

[D]

It's like we're always trying to find because that's the easiest. That's the biggest paper loss deduction that we can take and use to offset businesses that are usually crushing when it comes to income. So that's kind of what we're trying to solve here with that. So next question is, are these partners taking advantage of cost segregation studies? You know, the listeners of this podcast are very familiar with cost segregation studies. They're very familiar with them. They know that Hall CPA does them now. However, there's a lot of people out there that still don't know what a cost segregation study is. And you bring it up with people sometimes and they go, wait, what is that? That sounds really interesting. And so essentially they are not using cost seg studies right now. So that is something they can absolutely start looking into for the office building. Now the next question, Tom, is how is it structured? Right? Yeah.

[C]

The way you structure when you, whenever, if you're listening here, you have an operating business, whether it's a dealership or an accounting firm or a law practice, medical practice, whatever, really doesn't matter. Supermarket. And you also own the building. You want to make sure that you structure it the right way because that's going to be the key to unlocking tax benefits. So should we break down how this works first? So, okay, when you own the building and the operating business, you have the option to group those two businesses so the business, the operating business and the piece of real estate together as the same business. And that what that will allow you to do is allow you to take the losses from the the building that you own. You're operating your business out of against your non passive income. However, in order to do that, either one or two things needs to be true. That the ownership, if you own them in separate entities, which is very common, right. You might have your operating business in one llc, let's call it opco llc. And you have Propco LLC that owns the underlying property. And that's for legal liability protection. Very prudent for most people probably to do. Now the ownership structure in both of those entities needs to be 100% identical, right? So example, if me, Nate, own the business, 50, 50, then we also need to own the property. 50, 50. It can't be 100% Nate and 0% me. It can't be 75% Nate, 25% me. Whatever combination you want to think of doesn't matter. It needs to be identical. And then you can group them together using, believe it or not, the Dash 4 election or one of the elections under that, under that section.

[D]

Right.

[C]

Or the Business operating business itself has to then actually own the property. So that's what needs to be done in order to make the losses non passive.

[D]

Yeah, Tom, you're totally on point. Like that's exactly what you have to do and is super ideal. If you own your building that you're working in, like Thomas saying earlier, whether you're a dentist, attorney, whatever, it winds up being you own that commercial real estate. Absolutely. An opportunity you can take advantage of. The only issue that exists is you have to make that grouping election the first year. That's the year you buy the real estate. If you don't, you're still not like out of the waters per se. You just might have to go back and amend the tax terms. It's super dependent on the situation. But basically you have to make like there is late relief election for doing it, but you have to go back to make it right. You have to amend returns, go back to the earliest year you could do it because it has to be grouped the first year. So just an FYI on that one, guys like it can be painful if you don't do that because it gets expensive. We have to go back and amend tax returns now. It's the retroactive cost. A lot of issues there. So just FYI on that note.

[C]

Yeah, for sure. So if you're an operating business out there and you also own the real estate and you've not done this, you should go speak to an advisor, a qualified tax advisor who's going to be able to help you make the determination on if this is possible for you or how you can make it possible for you. Or if you're considering a building, why not get ahead of the curve, have a conversation with your tax advisor and how you can structure this today in order to when you do acquire that building, everything is a go from that angle. Because for operating businesses that also plan to own the real estate, this is a major unlock that you may very well want to be taken advantage of.

[D]

So 100%. Okay, Tom, so we've dealt a little bit with the operating business. Next we have to move on to like that personal side where the partners running the business invest in those short term rentals. So as we're looking in the wild, right, we're observing from our discovery photography areas, whereas we're watching everybody down, down below. What is your next recommendation or questions do you have for someone to effectively pull this off?

[C]

Okay. On the short term rental side, if you've been tuning in for this show for a very long time, you know the deal Right. You know, you need to have an average period of customer use of seven days or less, ideally two stays or more, as many as possible within that first year. And you want to self manage these properties typically and at least in the first year in order to maximize these tax benefits. Now I know you mentioned that they're looking to use a property management company for the short term rental. And that is where things get really complicated. Because with property management you're fighting an uphill battle. The reason why is that the IRS and the IRS atg, okay, they state very clearly that if you have a property manager, you're deemed not to be materially participating. And again, seven days or less and you need to materially participate. If you have a property manager firm, you are deemed to be delegating that to somebody else and then you're not mater participating. So you're fighting an uphill battle. And there's also tax court cases where taxpayers continuously lose. Not saying it's not possible, but you're threading a really thin needle when you are going to be using a property management company with a short term rental.

[D]

Yeah, Tom, like that's unfortunately like if you catch it early enough in the year. One of the things I didn't mention is this investor purchased a short term rentals in 2025 very, very late, but they didn't get a booking until 2026. So that changes our place in service date, doesn't it?

[C]

Yeah, I mean at this point, so if you bought the property in 2025, cool. But in order to use a short term rental loophole, in order to use the strategy, you need to actually have guest stays. Right. You actually have people stay at your property in order to pull this off. So it was not placed in service and you had no guest stays until 2026. This is not going to benefit you for 2025. We're now looking at 2026, which is is good news in the sense that it helps you in 2026. It's bad news in the sense that AANG can help you in 2025.

[D]

Right? Totally. Now let's say they have like the property management companies that are only operating like what they're only two months into operation. There's a good chance that you could say, hey, I gotta cancel my contract with you now and get out of it and go back to doing to managing on your own. That does give you a window if you notice that. Right. I know we get a lot of people who sign up for short term rentals and immediately pass it off. To a property manager and they go, great, I'm gonna be amazing on tax benefits now. Right? And the real answer is, you're probably not. And let's say you did claim this, right? You're now at a very high audit risk, in my opinion. We've seen a lot of this. Every single time we deal with an audit, the first question they ask is casino participation log. And they look at that little management fees line on the Schedule E. Right? It's like, I forget exactly which line it is, but they look right there to ask and find out, did they actually do this all themselves or did they not do it themselves?

[C]

Right.

[D]

That's the question they ultimately want to ask.

[C]

Yeah.

[D]

So first book in 2026, now we got to flip our timeline a little bit, right? So that means now we have to go like, oh, like for 2025, we've lost deductions. That's okay, but what do we do next? Right. Is there anything that, like, so we can't do anything in 2025 necessarily, but are they going to do any renovations, they're going to do any improvements in 2026 again to continue capitalizing on those deductions?

[C]

Right.

[D]

That would be the next question that we'd want to ask here. And just look, how do we do this and how do we take advantage of this stuff?

[A]

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[C]

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[A]

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[C]

So. So one of the questions that this kind of came up here is could they have just listed it on Airbnb and VRBO to establish the fact that it was placed in service and available even without booking it? And the short answer to that question is no. Right. There was a task card case, I believe it was Moreno versus Commissioner, I think, or Moreno versus usa. I forgot the exact task card case where they determined that without any customer use, you cannot determine the average period of customer use. So listing it is good enough when you have a long term rental. Right. Listing it for rent, making it available for rent, that's considered place to service, you're good to go for long term rentals. When it comes specifically to short term rentals, you need to actually have the guest stays. So for 2025, simply listing on Airbnb or VRBO or wherever is not good enough. You need to actually have somebody stay at your property. And again, this has to be third party people. Right? They can be your friends as long as they're paying rates, but they cannot be your family members. Right. Your immediate family members. So the bottom line is this. The bottom line is in order to establish customer use and take advantage of the short term loophole, you need to have it guest days, in this case in 2025. No go for them right now.

[D]

Right on the money, Tom. And so that's something else that like the IRS has asked and I've seen them try to disallow, saying, hey, your fair market value of your rent is way too low. Now if you actually go into the explanation of why your rent is low, that can make sense, right? That like I've had a client who has an Airstream trailer and the IRS just assumed it was a rental property. Right. Those things rent like 150 bucks a night as, like, as an Airstream trailer. But they seemed, oh, that's a property that doesn't count. That's not enough rent. Not the case. But you got to make sure you have documentation and are able to support all that stuff.

[C]

Yeah, the fair market rent, just to touch on that a little bit, it could be very compelling or it could be very tempting to give your friends a very nice discount on your property. Just note that if it's too far off fair market rent, I think there's like a, a 20% good tenant discount that you can give them. I think, and I know that applies to long term rentals, not 100% sure on short term rentals, but like you, there's some wiggle room there. But if it gets too far below fair market rent, then it could be considered personal use.

[D]

Yep. Yeah, you're totally right. And that's again, personal use. What happens when you have personal use? Tom blows our strategy, especially we have very little days.

[C]

All right, so the next next order business, this taxpayer also has a vehicle that they're using for business purposes. Okay. And within that, the question is, you know, they're running back and forth between the dealership, the short term rental property, and presumably managing the management company. How should they be tracking and deducting vehicle expenses?

[D]

Right.

[C]

So recapping the vehicle Rules real quick. What most taxpayers want to do when they have the ability to use non passive losses is they want to buy a vehicle that weighs over 6,000 pounds, called a Gross Vehicle Weight rating. EVWR. Think about trucks and SUVs, things like that. Ford F150 immediately pops in the mind.

[D]

A G wagon, right, Tom, Meet the criteria.

[C]

So the Lamborghini Uruses, they do. I mean it's the facts. They, they do, they meet their requirements, those types of vehicles. Right. And in order to deduct them, again, needs to have that gross vehicle weight rating, 6,000 pounds or more and needs to be more than 50%. You need to use it more than 51% basically in order to deduct it. Start using bonus depreciation. Because you can bonus depreciate these vehicles. You can use 100% bonus depreciation up until the vehicle's use. So if you use it 100% for business, you could bonus appreciate the entire amount. Use it 51% for business, you could bonus depreciate 51% of that amount. So the question though here is how is that tracked when he has multiple things that he's doing multiple business activities with one vehicle? Again, short term rentals, the dealership that he's running and potentially running back and forth to meet with his property manager. How does this be bifurcated? And Nate, that's a great question. I would love to get your take on it because I could give my take, but it's. This is muddy waters here.

[D]

Yeah, I totally agree with you guys. I think it's muddy waters. So in my opinion, the short term rental was not an activity in 2025. Right. So we're looking back at 2025. I know we keep going back and forth, but now we're looking at 2025 in 2025, short term rental, not an activity. So we got to toss that one out kind of. Now the dealership, what is he doing right now? We have to be careful about how we take our miles and track our miles here. Right. So he's got short term rental and no management company. So he's got his, he's got his dealership. Maybe he's got to drive to go to clients, right. To other vendors, got to drive out to. Maybe he's got to drive and actually drop off the equipment. He's got. Maybe, maybe he's got to actually go off and drop it off. Right. That's good business miles. That totally works and that totally counts. And in my personal opinion, as long as it's a business use across the activities, it should be fine. Now you can get into the conversation of how it should be allocated per activity. That one's a little bit of a muddier conversation in my opinion. But a business model is a business mile. It doesn't matter which business it's for, it is a business mile. In my personal opinion. However, we have to be careful about which ones count. So if he's at home, doesn't have a home office and has a on site location that he does pretty much all his work from, doesn't take any work home. We know most business owners take work home, have an office at home, they probably consider the home base, can consider that a home office, no problem. We don't have to worry about commuting miles. But if he does everything at the office, right. Tries to keep his work life balance separate. Now those commuting miles aren't going to count for us technically, but everything else should. Right? Tom, anything else you'd like to add there?

[C]

Yeah, I agree. Overall, like a business model is a business mile and especially when everything seemingly is going to maybe be non passive for him. But getting into the weeds of how do you allocate that is one thing.

[D]

Right.

[C]

But yeah, bottom line is seems like everything is doing business miles here. So he should be in good shape.

[D]

Yep. Yeah. And so now we can take bonus appreciation. Tom, does it matter to take 179 or bonus appreciation? Is there any difference there or is it kind of all the same thing at the end of the day?

[C]

So yeah, 179 versus bonus depreciation. Usually bonus depreciation is typically the way to go. And in this case it seems like that's, that's still the right way. The issue with section 179 is, is that if you're operating your business in different entities or say for example like an S corporation. Right. Say his dealerships in an S corporation. This has nothing to do with the vehicle itself, but just kind of give you an example of section 179. Say you wanted to deduct, depreciate a piece of equipment that he has, right. Well, it's located in his S corporation. So he uses 179. He gets to totally deduct it on his from his S corporation. That deduction in his S corporation can only bring him to zero. It will not bring him below zero. So he will not create a loss that passes through him personally that he can use to offset his income. Right. Beyond the income that he has within his S corporation. Where his bonus depreciation, so long as he has the basis to take the losses from his S corp, he can take the losses using bonus depreciation. So bonus depreciation is typically the way to go in most cases. And seems like that's the case here as well.

[D]

100% with 100% bonus back, right? Not to be, not to do that on purpose, but it's typically the case with it being back. Now, Tom, there's one hidden aspect that I don't think we mentioned at the top. So their dealership, a lot of times when you have dealerships, if they're equipment dealerships, if they're anything of that nature, they more times than not have an equipment business on the backside. And so with this equipment business on the backside, generally when you're renting equipment out and something you're actually operating in, you're providing what I call extraordinary services, which more times than not your ur which basically says like you're, you'll call your prayer person to come out, you're going to get depreciation from that. And so this individual had mentioned to me they own an equipment rental part, right? They take the equipment rentals. And I asked like, oh man, how much are you guys purchasing every single year? And it was in the millions of equipment that they're purchasing and renting back out to customers who need to use it. So I asked them, like, you keep talking about having a really high tax liability, but this sounds like there should be a lot of depreciation here. And they said, well, we always do straight line depreciation every single year. I was like, so you guys are electing out a bonus every single year? And like, yeah, like that's what we've been recommended. Is that not the right case, Tom? I'd love to just get your quick 2 second reaction to that.

[C]

Yeah, I mean we talked about this on a recent episode here, erroneously electing at a bonus depreciation. Like look, it sounds like to me these guys have a very successful operating business. I don't know what their revenues are, but sounds like it. And when you have operating revenues that high, it's usually going to result in assuming you're managing your business, right? Net income that's going to be taxable and depreciating the equipment that you're buying for the business and using it to offset the income that you have from that business and presumably perhaps other sources is a key strategy here.

[D]

Right.

[C]

The time value money we want to take the depreciation today, offset our taxes, pay less taxes, use that money to reinvest in our business and our portfolio, whatever we want to do with that money. But here it sounds like they're electing out a bonus depreciation, which I would consider as their tax advisor to be unless. Unless their CPA sat them down and said, hey, here's what we're doing, why we're doing it. Are you sure you want to do it this way? Which it doesn't sound like they did. Probably bad advice. It's bad advice in my opinion.

[D]

Yep, 100%, Tom, you're right, it is bad advice. Like the guy was telling me, is paying hundreds of thousand in taxes every single year because their business is successful and they have no offsetting deductions except for the fact that they have all this depreciation that they should be using basically every single year, but they're not. And one of the issue is a not great tax advisor, like you're saying before. And I think that's one of the biggest things is having a tax advisor who will sit down and, and work with you, respond to you and actually say, hey, we want to plan. They said they multiple times they've tried reaching out to their tax pro and they get nothing back saying, hey, we want to plan for this year. I think we're going to get crushed in taxes. Hear nothing back. And that's why working with a good advisor is so important. Right? It's like, look, regardless who it is, it's so important that you can actually

[C]

have an implement strategies, you know, 100% sometimes. Look, I want to be clear. Everybody tuning in, like there could be reasons to elect out of bonus depreciation in some cases that are legitimate. Those cases exist, but in most of the time you don't want to elect out. So if your CPA tells you right now they're electing out a bonus depreciation, maybe they're right. Maybe there's a good reason for it. But it's a flag. It's a sign that you need more information. Hey, please help me understand, why are you doing this? If I don't elect out a bonus depreciation, what does this do to my tax liability? Right? Those are important questions to have. Maybe you need a second opinion because in this case, this is probably costing them hundreds of thousands of dollars in tax savings. My guess, just based on the numbers that we're hearing here. So bottom line is this, if someone is telling you to elect out a bonus depreciation, get a second opinion or at least get a really thorough and very clear on why they're doing it and what the potential adverse consequences of that might be for you.

[D]

Exactly. Totally right, Tom. So Tom, what's the big picture that they should be considering going forward? I know we've talked about a whole lot, right? And like, let me say that like we've talked like when we work with our, with clients, they have a whole lot going on here. So how, what's the nuts and bolts of what, of what they should be doing going forward. Like what are the top three things that they need to just change up? Not even like have to do anything new, just change up to actually get some tax savings.

[C]

Yeah. Let me bullet point this for you. First things first, short term rentals is start there because it's the cleanest and easiest to knock out. Okay. First of all, you want to continue to make sure you have an average period customer use seven days or less. That means listed on Airbnb or vrbo and actually get guest stays at fair market rents. So you can establish that has the average period of customer reaches seven days less. Next, for the first year you own these properties, get rid of the management company. Right. That's my opinion. This is my take on it. I mean, look, you can argue about certain hours you could delegate to property managers and we're getting into the nitty gritty and we're parsing hairs here. But for most people, you're probably better off just self managing it for the first year so you can claim your deductions on your short term rentals. That's the short term rental side of things. On the equipment leasing side, please stop electing out of bonus depreciation moving forward.

[A]

Right.

[C]

It's an annual election. Just stop doing it. Just stop. It's permanent once you do it right, but just stop doing it right and get a second opinion. Do what you need to do because you're probably leaving hundreds of thousand dollars on tax savings on the table. And if you want go into ChatGPT, ask it what the return on investment would be at an 8% return in 10 years and you'll probably be shocked. Okay, now for the actual operating business and the building, go back to the first return and just double check to make sure that either the grouping election was made or have a conversation with somebody who can maybe go back and amend that return for you to make sure that grouping election is made. Those are the top three major opportunities there. I'd say the biggest one probably is the equipment leasing one. But yeah, those are three things that I would, I would be keeping an eye on Yep.

[D]

No, I brought some. I totally agree with you. I think you nailed it on the head. So look, these are situations that we run into on a daily basis and we're going to continue to look through these situations. And look, if you have an interesting situation that like, hey, you want to describe to us? Tom and I would love to add that to our in the Wild segment. And going forward, we're going to start taking listener questions and listener voicemails going forward. Now, we don't have that official yet. It's going to happen. So just FYI, putting that out there and then don't forget, we're also going to start going live once a month to answer you guys questions, kind of do our mailbag episode. So stay tuned for all those types of announcements going forward. Tom, anything else you'd want to add to the situation or at all?

[C]

No, I know. I mean, I think those are the top three things. But like Nate said, we see this stuff every single day. And you know, being a tax advisor, having advised as many clients as I have and looking at this stuff, it's like, oh man, if only they would have started working with Tax Advisor earlier, this could have been mitigated or could have been planned for and things could have been done better. So, you know, that said, we are always accepting new clients. So if you are in a situation, you're not working with a tax advisor or you do feel like you need a second opinion, you're leaving too much money on the table. Like in this case. Go ahead, follow the link in the show notes the link in the show notes to schedule a discovery call with our team. We'd love to learn more about your situation and see how we can help you position the pieces of your puzzle together in a way that are going to lead to better tax outcomes for you, more money back in your pocket that you could take and reinvest into your business, your portfolio, maybe take a family on that vacation you want or things like that. That is something that we're able to help with. So go ahead and fill that out. We'd love to talk to you. And that's it for today. We'll catch you on next week's episode of the Tax Smart REI Podcast.

[A]

The Tax Smart 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 and 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.

[B]

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