Investing In Short Term Rentals
There are many ways to invest in real estate and many different strategies.
Did you know each investor has a different strategy that fits their goals and portfolio? One deal may be good for one investor but not fit the other's plan and goals!
One way to invest in real estate is through Short-term rentals. Short-term rentals are exactly what they sound like: They offer guests stays under 30 days.
Because a large portion of our investing strategy is building tax-free wealth, I have read up on ways to invest in short-term rentals and the tax benefits of doing so.
Here are a few reasons we invest in short-term rentals:
Rental Income: The IRS considers any income earned from short-term rentals taxable. This includes rental income from vacation homes, apartments, or any other property rented out for short periods, so track your expenses well!
Deductions: Homeowners can deduct certain expenses associated with their short-term rental property, such as mortgage interest, property taxes, insurance, utilities, maintenance costs, cleaning fees, and property management fees.
Depreciation: Homeowners can also take advantage of property depreciation deductions, which allow them to deduct a portion of the property's value each year over its useful life. You can also perform a cost segregation study to help accelerate depreciation, but I wrote about that in another post.
Passive Activity Losses: If you actively participate in managing your short-term rental property, there's a potential silver lining in the form of passive activity losses. You may be able to deduct up to $25,000 against your other income, subject to income limitations. This possibility can instill a sense of hope and optimism about the financial benefits of your real estate investment.
Tax Planning: The key to maximizing the tax benefits of short-term rentals lies in meticulous tax planning. Keeping detailed records of all income and expenses related to your short-term rental property is crucial for accurate reporting on your tax return. It would be a good idea to consult with a tax professional or accountant to ensure compliance with tax laws and strategize for maximum benefits. This proactive approach can provide security and confidence in your real estate investment.
Overall, short-term rentals can offer tax benefits to homeowners. Still, it’s essential to understand the tax implications and requirements associated with renting out a property in the short term.
As always, I am speaking from experience and am NOT a C.P.A. If you need help finding a C.P.A., Send me a message below, and I can help.