@@Ryanknowsit You don't HAVE to. But you are accelerating the depreciation on the property when you do this, and if you are buying right you are also getting strong cashflow. So to continue to not pay taxes you have to keep adding property.
@@jacobyatako oh okay so basically someone wants to stop adding property then they stop the cycle. Then i dont see why you would want to stop adding property lol whats wrong with more property if managed correctly and you deduct your taxes on expenses correctly.
@@Ryanknowsit eventually more people each a point where it's just time to start paying taxes. Each new property comes with new responsibilities and future headaches.
Let's say I wanted to day trade in a roth IRA. After I withdraw all of my contributions, if I took out more, I know I have to pay the penalty, but do I pay taxes on it then? Even if I do pay taxes, would that be better or worse than day trading in a regular investment account and paying capital gains tax? Which situation would cast me less? Obviously with a roth, I only withdraw what I actually need, so the rest stay in a tax free shelter, but for the sake of the scenario, let's say I profited $75000 that year from day trading and withdrew the full profit amount. Which scenario would cost me less m
once you're considered a real estate professional its hard to go back. Active losses are great, but what happens when you run out of depreciation ? Your income is classified as active.
Does this loophole still work if you hire a management company to manage the short term rental or just if you are the one managing it in order to deduct income from an S Corp
This is a great video and legit. Of course, with any strategy, be careful of those who may exaggerate the cost seg study's ability. Just follow Karlton's steps, and you will be in good shape.
i currently have long term 4 renters/tenants in one 4 bedroom home but could I convert just one room in the house as a short term rental to meet the short term rental loophole?
Instead of doing a short term rental, wouldn't claiming losses from a sole proprietor business off set your w2 taxes too in the same way, using the basic deductions? It doesn't have to be just the short term rentals play....
Karlton Dennis, Could you do an episode on Airbnb's in someones residence? for example I run an Airbnb out of home (basement), what are the pro's con's LLC no LLC looking for you input and views for write off's . Thanks!
Yes. An LLC never makes any difference in your federal taxes. An LLC is just for liability protection, it has nothing to do with how you are taxed or what you can deduct. Misunderstanding the purpose of LLCs is the most common misconception about taxes.
You shouldn't put rental properties in an S-corp. The advantage of an S-corp is that if you're running a business, it can potentially save you money on your social security and medicare taxes (FICA). But rental property income isn't subject to social security and medicare taxes anyway, so that advantage doesn't exist for rentals. And the tax benefit you can claim from the real estate in an S-corp is limited to your "basis" in the S-corp. And moving property into or out of an S-corp is a taxable event that will trigger capital gains and depreciation recapture taxes.
How do you get around the depreciation recapture if you 1031 out of one of these properties a cost seg has been performed on? My research suggests you can do a cost seg on the replacement property and work around this recapture problem.
It makes sense. You earn more because you are working more. Running an Air BnB or whatever is not something you do on a whim. Well, it certainly isn't something you're likely to be successful at on a whim. It's a real business that requires your attention, respect, and often your time and physical presence. Yeah, you can hire the work done (mostly) and hope the costs don't outweigh the tax benefits. That is a business decision. It's not for everyone. I'd rather enjoy my time off, for example. If you're going to do this, the strategy KD describes may be right for you.
To clarify if one has a 300k income tax liability from w2 and K1. Is it possible to purchase a 600k single family house list it for short term rental. Use cost seg and depreciate 100% against the 300k income tax and pay zero?
You never mention Re-capture in this videos. Please include. Does the STR rule require it is leased for an Average of 7 days every year, or do you only need to do this once?
This is a very informative video. But why do you call this a loophole? Even long term rental is a lot of work and should be considered active income. The only reason rental income is considered passive income is because government wants to take more money from us.
I lost over $70k when everything started to tank. Not because I was in an exchange that went belly up. I was just stupid to hold and because that's what everyone said. I'm still responsible. It just taught me to be a better investor now that I understand more of what could go wrong. It took me over two years of being in the market, I'm really grateful I found one source to recover my money, at least $10k profits weekly. Thanks Patricia Annie Brooks
She is my family's personal broker and also a personal broker in many families I'm United States, she's a licensed broker and a FINRA AGENT in United states
I just withdrew my profits a week ago, To be honest it was an amazing feeling when the profits hits my wallet I wish I could reinvest but, too much bills
What's you're definition of a loophole? Then what is your definition of tax loopholes?? A lot of people don't understand these are strategies that might not even be useful to your situation. Especially if you don't owe a lot of taxes or have to all of a sudden owe a lot.
That’s exactly what a loophole is lmao? Something they don’t want you to do but is technically allowed to do bc of a specific rule. Which is exactly what he showed
The depreciation loophole should be stopped... Depreciation is meant to be used to improve or maintain the building over time, NOT to make someone rich and evade taxes. Im in Florida and we literally have buildings falling down due to people deferring maintenance on these buildings. And it's funny, after the 27 years of deprecating a building they are the same people that will try sell that home for retail or market value like they've been maintaining it the whole time. This is the main reason Trump is in office. It's to keep this one loophole so he is able to evade taxes. Hooray for deprecation!!!!
Want to learn more about this tax strategy? Pick up a copy of my ebook, The Short-Term Rental Rule here!
ebook.taxalchemy.com
Karlton you are the man. Thank you.
Very very good content. The channel absolutely one of the best. I'll be in touch.
Could you rent to the same tenant week to week and apply short term rental rule?
If you started renting it the last two weeks of 2023, how long would you keep it a STR for 2024?
Can you talk about leasehold improvement? Is a dog park build worth considering?
I've completed my second cost segregation this year. I need to buy a property every year to keep this tax strategy going
thats the problem I see with taking all the deduction up front.
Why would you have to buy property every year to be able to take advantage of this strategy
@@Ryanknowsit You don't HAVE to. But you are accelerating the depreciation on the property when you do this, and if you are buying right you are also getting strong cashflow. So to continue to not pay taxes you have to keep adding property.
@@jacobyatako oh okay so basically someone wants to stop adding property then they stop the cycle. Then i dont see why you would want to stop adding property lol whats wrong with more property if managed correctly and you deduct your taxes on expenses correctly.
@@Ryanknowsit eventually more people each a point where it's just time to start paying taxes. Each new property comes with new responsibilities and future headaches.
Great job on the video! Very well said.
This all sounds great but a bit complex. Could we just abolish the IRS?
Let's say I wanted to day trade in a roth IRA. After I withdraw all of my contributions, if I took out more, I know I have to pay the penalty, but do I pay taxes on it then? Even if I do pay taxes, would that be better or worse than day trading in a regular investment account and paying capital gains tax? Which situation would cast me less? Obviously with a roth, I only withdraw what I actually need, so the rest stay in a tax free shelter, but for the sake of the scenario, let's say I profited $75000 that year from day trading and withdrew the full profit amount. Which scenario would cost me less m
Great episode! 👍
once you're considered a real estate professional its hard to go back. Active losses are great, but what happens when you run out of depreciation ? Your income is classified as active.
Does this loophole still work if you hire a management company to manage the short term rental or just if you are the one managing it in order to deduct income from an S Corp
Thank you!!!!
Right on time, Thx
Do you have any current youtube shows about EIN and how it relates to your businesses/ LLC / SCORP?
This is a great video and legit. Of course, with any strategy, be careful of those who may exaggerate the cost seg study's ability. Just follow Karlton's steps, and you will be in good shape.
i currently have long term 4 renters/tenants in one 4 bedroom home but could I convert just one room in the house as a short term rental to meet the short term rental loophole?
Can the short term loophole offset partnership pass through income? Partnership is not with spouse.
Instead of doing a short term rental, wouldn't claiming losses from a sole proprietor business off set your w2 taxes too in the same way, using the basic deductions? It doesn't have to be just the short term rentals play....
Karlton Dennis,
Could you do an episode on Airbnb's in someones residence? for example I run an Airbnb out of home (basement), what are the pro's con's LLC no LLC looking for you input and views for write off's . Thanks!
I’m interested. More info please
Will this work without an LLC? Thanks Karlton…
Yes. An LLC never makes any difference in your federal taxes. An LLC is just for liability protection, it has nothing to do with how you are taxed or what you can deduct. Misunderstanding the purpose of LLCs is the most common misconception about taxes.
If u buy a home cash can I still take the depreciation?
yes
Yes, however please understand this is not a “hack” or “loophole.” It’s simply allowable under the IRS
Awesome content!👏👏
Great video.
For you to be able to take depreciation, you need not make more than $100k-$150k a year. There is income limitation. Correct?
What about S corp. It does the same thing for a long term rental as you described. Is there any difference with your loophole?
You shouldn't put rental properties in an S-corp. The advantage of an S-corp is that if you're running a business, it can potentially save you money on your social security and medicare taxes (FICA). But rental property income isn't subject to social security and medicare taxes anyway, so that advantage doesn't exist for rentals. And the tax benefit you can claim from the real estate in an S-corp is limited to your "basis" in the S-corp. And moving property into or out of an S-corp is a taxable event that will trigger capital gains and depreciation recapture taxes.
What happens if you accelerate depreciation, but then resell the property a few years later?
How do you get around the depreciation recapture if you 1031 out of one of these properties a cost seg has been performed on? My research suggests you can do a cost seg on the replacement property and work around this recapture problem.
KD tells half truths at best. Find a local qualified tax adviser!
It makes sense. You earn more because you are working more. Running an Air BnB or whatever is not something you do on a whim. Well, it certainly isn't something you're likely to be successful at on a whim. It's a real business that requires your attention, respect, and often your time and physical presence. Yeah, you can hire the work done (mostly) and hope the costs don't outweigh the tax benefits. That is a business decision. It's not for everyone. I'd rather enjoy my time off, for example. If you're going to do this, the strategy KD describes may be right for you.
Thank you for this important information. The page "Schedule consultation" seems to be not working.... Is there a phone number to schedule a consult?
All of that depreciation gets added back in when you sell. I don't see depreciation as a great advantage.
To clarify if one has a 300k income tax liability from w2 and K1. Is it possible to purchase a 600k single family house list it for short term rental. Use cost seg and depreciate 100% against the 300k income tax and pay zero?
Yes.
Learned something new today.
Would this work for condos? I have a condo in a 4 unit building.
Mid terms rentals qualify for the short term rule?
No, the average stay (the average during the year) has to be 7 days or less.
Doesn't make sense, if you just do normal rentals aren't you just delaying your gratification?
Im having a problem becoming a real estate professional since I work a full-time job😢
Is there a limit on active income ( primary job) to deduct/ offset using short rental loopholes? Like the traditional limitation which is 150k only.
No, there isn't an income limit for the STR loophole.
I thought you could only deduct a max of $25,000 in active losses by using a short term rental?
That's the rental losses you can deduct. You can combined that with these other things
Man…. Thank you, wonderful video
Asseleration
You never mention Re-capture in this videos. Please include.
Does the STR rule require it is leased for an Average of 7 days every year, or do you only need to do this once?
Yes, this is 7 days or less average for the tax year. The 100 hours is pretty easy to obtain especially if you are able to group the activities.
Why we he mention this in his "click bait" video? Consult a qualified tax advisor (not KD)
This dude!😮
This is a very informative video. But why do you call this a loophole? Even long term rental is a lot of work and should be considered active income. The only reason rental income is considered passive income is because government wants to take more money from us.
Isn't this already phased out though? So now its only 60% of the value, dropping 20% each year until 2026
🔥🔥🔥🔥🔥🔥🔥
I lost over $70k when everything started to tank. Not because I was in an exchange that went belly up. I was just stupid to hold and because that's what everyone said. I'm still responsible. It just taught me to be a better investor now that I understand more of what could go wrong. It took me over two years of being in the market, I'm really grateful I found one source to recover my money, at least $10k profits weekly. Thanks Patricia Annie Brooks
She is my family's personal broker and also a personal broker in many families I'm United States, she's a licensed broker and a FINRA AGENT in United states
You trade with Annie Brooks too? Wow that woman has been a blessing to me and my family.
I just withdrew my profits a week ago, To be honest it was an amazing feeling when the profits hits my wallet I wish I could reinvest but, too much bills
she's mostly on Instagrams, using the user name
fxannie19 💯 ..that's it
I love your light!!!
No
Stop calling them loopholes. That word is very misleading. Something that is allowed to be done is not a loophole
I agree with you….but calling it a loophole definitely caught my attenttion😅
I feel like he calls it loophole because not a lot of people know about it. But loophole is an attention grabber
What's you're definition of a loophole? Then what is your definition of tax loopholes?? A lot of people don't understand these are strategies that might not even be useful to your situation. Especially if you don't owe a lot of taxes or have to all of a sudden owe a lot.
That’s exactly what a loophole is lmao? Something they don’t want you to do but is technically allowed to do bc of a specific rule. Which is exactly what he showed
I can hear it now....the word loophole makes it sound like an unfair advantage. Next thing you know the Democrats are trying to get rid of it.
You did not disclose that in the year 2024 you’re only able to write off 60% of that 155….not good advice imo
I was wondering about this as well. Isn’t it totally phased out in the next year or so?
The depreciation loophole should be stopped... Depreciation is meant to be used to improve or maintain the building over time, NOT to make someone rich and evade taxes. Im in Florida and we literally have buildings falling down due to people deferring maintenance on these buildings. And it's funny, after the 27 years of deprecating a building they are the same people that will try sell that home for retail or market value like they've been maintaining it the whole time. This is the main reason Trump is in office. It's to keep this one loophole so he is able to evade taxes. Hooray for deprecation!!!!