In the short-term rental riches will discuss investing in real estate with a specific focus on short term rentals quick action items to wire. Scale your portfolio I’m your host Tim Hubbard.

Welcome back to the short-term rental riches podcast happier again as always and we have a really special episode for you today something different something that we’ve never done before I’m going to be interviewing Amanda and she’s been my CPA for about the last 5 years so thought to be better just to bring the expert in we’ve talked about taxes before in the past so super super important topic and none better than Amanda herself to give us the answers she has been investor for a long time she is the author of tax strategies for the savvy real estate investor would you can find on Amazon and it’s got hundreds of reviews so I highly suggest you guys check it out and she’s also been a speaker on talks at Google C. N. B. C.’s smart money talk radio she’s ban author has publications in money magazine ruler.com all business.com so really really excited to have a mandate here welcome Amanda Hey thank you so much for having me tell em I am so excited to be here and talk about short term rentals it’s definitely a good space to be M. from what I see you know as a as a CPA yeah you get to see you get to see the actual numbers don’t use so. I mean I say like you hear a lot you sometimes hear these will say experts talk about you know how good of a return and you never really know how good it is but I can say for sure I really know how good it is because no one makes up income numbers when it comes to filing taxes. We actually get to see properties that have good returns in the short term rental space has been one of the highest returns what we’re saying well I’m really excited to have you here you know I I’ve been working with the man of for like I said like 5 years now and which is about the time that I started with short term rentals so I was referred to her by another fellow investor and I love that about Amanda and her partner Matt in the both the keystone CPA is the name of their company and the fact that they’re also real estate investors just makes it that much better because we kind of have the same perspective on everything so yeah we’ve been working together for about 5 years and which is really when I started with short term rentals I guess you could say Amanda’s scene on the back and the growth of that I’ve had and like she said you know they can be some pretty powerful numbers yeah yeah I would say yeah you’re probably one of the first clients we hide in the short term rental space you know sort of a pioneer and it’s been so good to see how much you’ve grown and just kind of giving back and helping the community and helping other people a 2 year program and you know in the podcast with how you do those things because I have a lot of claims wind Kirsten to get into short term rentals space where the kind of afraid of the work involved the time involved I think it’s it’s really really great what you’ve done to get back and you know as I said in my email with you recently had another client who just said Hey I found out Sims are 20 and then I love this is low grade wow what a small world that everything’s come full circle so so excited to be here to talk about you know we are short term rental and all the related tax benefits you know we we focus on short term rentals here but we also talk about real estate in general and the 2 go hand in hand and it is a bit of a gray area for a lot of us still for lenders. Seen on the tax side everywhere because short term rentals are like this new concept Elise and you know when people think Airbnb and so really glad to have you on we’ve got a series of questions and we’ll jump through it will try to just give a good summary of things that we should be considering things we need to keep an eye out on you know and just some of the benefits of investing in real say when it comes to taxes we’ve we’ve talked about things like 1030 ones in the past and depreciation but I haven’t really dug fully into it 1 just because I’m not a tax professional. So really happy to have you here Amanda well I I guess you know when we think of short term rentals versus a traditional Ranil a short terminals were set up like a business right I mean it’s we’ve got people coming in and people leaving I N. it business saying come versus passive income is taxed differently is that right yeah a little bit so I just want to take a moment to define short term rentals from the tax perspective because I found that to be a point of confusion whereas for a lot of investors when they when they hear the work short term rental usually you associate that with like Airbnb BRP you know kind of what but just because the property is rented out on one of those ones does not mean it is a short term rental for tax purposes so for tax purposes is really defined by the the average number of guests days during the year as so what it means is here you look at how many days was rented out this property was rented out for the whole year you divided by the number of guests that you had about the year and if that average 7 days or less that’s what the short term rental in the eyes of the IRS if the averages 8 days nor more than even though it might be you know on Airbnb and things like that it’s still considered a regular long term rental property and so that’s the key difference because we are starting to happy where nesting in different parts of the U. S. where they literally wall how the summer months where it’s one guests that staying there for 30 days or even to be online in which case you’re even though to us mentally beating construction rental but it might not be but yeah for most people they’re doing their B. and B. B. R. be aware that you know the guests are staying strong 3 day recordings and then those are short term rentals for tax purposes and there’s really 2 different tax treatments one of which applies to most of our minds most investors is that they’re just. Regular short term rentals and on the tax perspective it means that it’s treated just like any other long term rental property except that when it comes to the ability to use some of the write offs and deductions offset other non rental income it’s a little bit easier threshold we’ll talk about that in a moment there’s other methods where sometimes the short term rental operators might go into here an Avenue where he comes like a hotel or bed and breakfast type of a scenario where you’re doing more than just you know renting out the room but you’re also providing a lot of added services like airport each airport drop off site being you know food and beverage delivery service beyond just like the water and salt pepper so in that scenario it is treated like a whole different business where not only do you have to pay income taxes but you also have to pay self employment taxes as well just like if you’re operating a hotel or a laundromat all of my tax perspective is not as ideal because you’re getting a little bit more taxes tactically speaking we really don’t have a lot of planes in that space weather doing hotel type service since I most people are you know just when they come out we get all cleaned up when they leave is the next time we’ll go in the property and you kind of work so those are just regular short rentals and that’s something you know I don’t offer a lot of those additional services just because we’ve talked before and I know that that that changes the the tax structure but but also just from an operational standpoint if you’re starting offering up all these other services it it creates a lot more operations at I know it is a lot more common with big vacation rentals you know sometimes especially if it’s in a remote area maybe it’s a foreign person coming in are you know international gas where they want to pick him up so for any of those of you out there that have larger Rick. Cation Runnels or currently offering other services you know I just want to double check those things make sure you’re not changing your tax structure basically right yeah I mean there are you know even if you are someone who is offering those services there are different strategies that you can use to reduce taxes on that kind of income but it’s just different than I would say 95 maybe even more than 95 percent of investors and clients we see are just regular short term rentals you again they might help you know water and snacks and all that but it’s they’re not really offering additional services like you would get at a hotel you know right now I’m not that’s interesting that the IRS considers it would would you say 8 days Alacer 7 is our last 7 yes 7 days or less yeah as most cities and regulations are you know they they usually use like a 30 day period and say okay was anything less than 30 days and that short term gas if it’s over 30 days and a lot of times we can bypass law the regulations and stuff of cities yeah and that’s where you have a different definition of you know this the occupancy tax from the city’s perspective and in the income tax from the iris perspective and numbers as well we think that the masters right if I don’t have a someone who signed a year lease therefore it’s a short term rentals and me right yeah it’s it’s pretty nice to get the the longer term gas you know 30 nights or more where their pain the nightly rates yes but you’re bypassing you know the the city regulations it was housekeeping it was all that so that’s like ideal I think the way just the world is especially right now with him from you know the work from home that worse we’re seeing longer term stays and I think that that will continue to be a trend yeah I I totally agree in fact that’s something your personal needs I’m not. Colleges Hey you know now that we’ve been working remotely maybe after taxi there we you know just try to live in Colorado for 2 months right different W. I will for a couple weeks and that’s it now we have this opportunity to really be immersed in you know whatever you wanna stay longer for the short term missions I certainly see that as a I’m AT S. share in the near future and and the crazy thing is that you know that’s a worldwide thing because the whole world’s gone to remote work and you know what I mean so the people there wanted to really experience may be a totally different culture come in and I I was in Brazil when they started locking everything down I was in an Airbnb ended up staying there for like several months just because. I I couldn’t travel you know back to the Columbia and the U. S. you know I think that those extended stays are just they’re more more common and it’s kind of exciting at the same time the the hotel’s unfortunately days they had a real tough time with this because they’ve gotten regulated much more than you know an individual short term rental would have so so we have this thing Amanda with taxes and it’s a huge tax savings when you become a real state professional can you explain that and what that means exactly how how we can get that status against yes certainly up real estate professional really the the benefit from a tax perspective is that if you or a spouse if you’re married if one of you can qualify as a real estate professional for tax purposes that means when you have rental losses your rental losses can be used to offset not just rental income but also other income you might have so if you have a business that you operate or if you have W. 2 income you’re making now the rental losses can be used to offset W. 2 income normally in order to use any excess went to Las offset non rental income your income has to be under 150000 combined as a married couple so so for you know that this this becomes kind of a a hurdle for some of our clients who have our high income earners high W. too but also have rentals on the site and you know even though might be really great cash flow but after we write off things like you know car expenses cell phone home office depreciation after when we went off on those things he create a big loss of the question just becomes how can we use that to offset income from these other sources and so from that perspective it’s really important to you for for someone to try to qualify as a real estate professional I’m of course not everybody is able to to to meet that status. Immediately but that is generally a longer term goals for investors you know everywhere that we need in order to be a real estate professional a couple things have to happen one of the person has to spend more time in Beale St than their jobs so you know if you’re someone who’s working a full time job 2100 hours it’s going to be fairly difficult to say you’re spending more hours than that in realistic prices almost like working 8:00 hours a day at your job and 8:00 hours a day in real estate and that’s what kind of difficulty comes in so so so the the rules at least 150 hours and spending more time in real estate thing your job and then you have to stay at least 500 hours on your rental properties so from that perspective again you know not although the benefit is huge not everyone is able to easily qualify as real estate professional status and this is kind of a good segue into the short term rental space and where the short term rentals have a little bit of an easier threshold to meet versus long term rental properties when it comes to short term rentals the way the iris looks at it as they say okay well you can use the losses from your short term rentals to offset W. 2 and other income even if you don’t qualify as real estate professional okay really yeah but I didn’t I didn’t okay. I didn’t know that but I guess I’ve just been doing real simple time so has it been right well but that’s really good and now exactly not not as applicable if you’re just someone doing real estate anyway you don’t really care but let’s say that you have another full time job you’re just 3 short term rentals I’m on the side right so so the IRS has a rule that says okay you’re doing short term rentals the you can use the losses from that short term rental property to offset other income provided that you materially participate in the short term rental property so you don’t have to steal the appeals a professional but you do have to meet material participation which is kind of maybe what you’re alluding to earlier similar to active participation so to meet with your participation there’s a couple different tasks one of the most common ones that people can meet its spending at least 500 hours on the short term rental properties okay so if you spend $500 on the short term rentals thank you can use the losses to offset W. 2 income even if you don’t qualify as real estate professionals doctors and and those hours could be anything from in our time spent messaging Gasser working with housekeepers or ordering supplies anything related to that short term rental car yeah yeah managing the rental property managing the gas the checkout process the cleaning process right so things related to the short term rental itself so you know a good example of how this benefit someone is let’s say that you know 10 if you you know you’re working full time in a W. too you just have to short term rentals right and there’s no way you’re going to spend over 2000 hours on the rentals because you mean death about time you’re spending at work so it’s gonna be very difficult and so the loophole around that as well are you at least able to spend $500 in the short term rentals and if so then you might be able to use those losses from the short term to start to decrease tax from W. 2 income okay so that that’s. One of the biggest reason that we’re seeing more and more people get into the short term rental space media first. Slow but. He said that. Well it’s you know there are 2 basic expenses are living expenses and taxes generally for everyone right and so if we can eliminate as much taxes we legally can then you know that’s a huge huge plus you know I’m for someone that maybe is a high income W. 2 earner and they’re paying 304050 percent now even of their wages you know if if they’re able to expense another $0 they potentially you’re saving for $500 try yeah and and you know right now we have bonus depreciation that still available and it’s very beneficial for short term rental operators because you know 1 of the things that most of us have to do is to furnish the short term well at least in that initial year so a lot of the furnishings fixtures appliances are eligible for bonus depreciation so it’s not an uncommon to have a pretty big tax write off in the first year reading a short term rental place and you know also just with the property itself right you first run so let’s say you know the building you bought for $100000 in the first year depreciation could be anywhere from 15 to 30000 of a tax write off and so you know if your ads you know 50 percent your savings 7 of 15000 in taxes just on the building depreciation value added the furniture and the home office so he could be you know a fairly significant toxic you know last year was the first time that I personally did that the bonus depreciation and and save a ton of money I couldn’t I couldn’t believe it and that will leave I’ll leave a note in the show notes for Scott’s information he he’s who helped us with the cost segregation’s but you wanna explain a little bit more about kind of how that process works what depreciation actually is and how that conservation is is helping us save more in taxes. Yeah we’re so deeply show basically one of the biggest tax benefit the real estate investing IRS allows us to take a tax deduction for what they consider depreciation of property so and the irises perspective is that you buy a building and over time the value of that building will go down in there for for tax purposes we get to take a right off I’m of course at the restaurant you know that’s not true because over time the value of the building actually increased but again that’s just yeah relevant you get to take a right off over time on the purchase price of the the building for the real estate so that’s normal depreciation you know for for for regular rental properties 27 I have your first lecture on brain cells is 39 year the the strategy of the call segregation though is to take a look at the building this $0 building and instead of saying it’s all building that you have an engineer or into conservation farm go out and look at the components of the bill. And so what they’ll do is also give us $100000 bill B. is actually made up of 30000 of mooring 20000 of cabinets 10000 of dry wall and when they break out those different components than us at CVS can come in and take a faster depreciation so that’s how you arrived at what you’re saying right wow what a large inspection that I now on this this rental property. Yeah I couldn’t believe it I mean we were even depreciating things like the landscaping which I would never never thought of you know like but trees have a certain life and and you know or and and one of the cool things about you know depreciation is it’s not actual expenses coming out of our pocket right it’s like a ghost expense you could dance so all right yeah we call the paper right off because it’s not cash outlay I mean normally you know it’s so your short term rental master you want to have tax write off you need to spend money right you need to pay are your cleaning crew more you need to be doing more marketing so this money cash all we need the benefit of depreciation is that there’s not a current cash outlay basically a paper right now based on the schedule virus gives us the other part that’s really great is depreciation space on a purchase price of the property and knock the down payment so let’s say you go on you by short term rental or $100000 0.even if you put no money down your depreciation Mr calculated based on that 0 so you take your right off now where you’re using leveraged right yeah I talk about leverage all the time on the podcasts and especially with interest rates now they’re just unbelievable you know and if we can lock him in for 30 years so that is that is a great point. Wow we just covered a lot in there so much more to cover I thought we should break this into 2 episodes so stay tuned until next week we’re gonna be covering a whole other host of good topics of relevant topics that you should definitely be considering whether you’re investing now or you will be soon and just to give you a little preview we’ll talk about what you should be doing if you’re living in one of your best man so if you have a 4 plex in your living in one units well there’s some things you should consider we’ll talk about the typical expenses you should be writing off all the time related your short term rental but also just real estate investment in general will talk about lease arbitrage and how that may change your taxes slightly and then probably one of the most important things we’ll talk about how you can use your experience and your time spent managing a short term rental to help offset income you earn from either a W. 2 job or from another business you have so stay tuned until next week I hope you have a wonderful day talk to you soon. So we just had our live virtual fan and I gotta say it was a blast as always we done to live events before and this was basically a replica except for we got to attend from the comfort of our own homes and the beautiful thing about doing a weapon or is it was easy to record so if you missed it jump over to rest methods.com forward slash virtual and you can get your copy we jam packed it filled to the brim everything that I’ve found to be the most important setting up your short term rentals and making sure you’re earning maximum revenue and highest occupancy but all while not giving up all of your time in creating passive systems so I give you all my resources we go over my actual properties case studies with pre and post code numbers and then my outlook in the future I think there’s a ton of opportunity so if you guys are just getting started or you have several properties already there’s no need to reinvent the wheel get all my tips and tricks things that I’ve learned and save yourself the headache and frustration just head over to rest message star forward slash virtual I know you’ll find a ton of value in it enjoy.

RELATED PODCAST EPISODES

• Episode 62: Professional Tax Advice From My CPA – Part 2
• Episode 38: Is a Short Term Rental the Best Use for Your Real Estate‪?‬
• Episode 35: Quite Possibly the BEST Tax Break Ever (1031 Exchange‪)‬
• Episode 20: Are You Getting Denied By Lenders?‬
• Episode 03: Owning a Short-Term Rental vs. Lease Arbitrage‬