The short-term rental loophole is a legitimate tax strategy that can significantly reduce an investor’s tax bill, but the details matter. In this short, we describe how someone who earned, for example, $10,000 a month last year could pay little or no tax on that income this year by writing it off through a short-term rental.
The catch: it takes a lot of work, and it’s a short-term game. The depreciation study has to be done properly to capture the right expenses and the portion of the property that can be depreciated. The benefit only lasts about four years. After that, all of the income from the deal is taxable. You also have to use the property the right way: rent it out consistently, keep it a legitimate rental property and follow every step your CPA tells you to follow. This is general information, not tax advice.
Key points
- The short-term rental loophole can offset a large share of income, but only if it’s structured correctly.
- A properly done depreciation study is essential.
- The benefit is temporary, lasting about four years in the example discussed.
- The property must be a legitimate, consistently rented short-term rental. Follow your CPA’s guidance.
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