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BearsFan
Baylor Fan
Member since Mar 2016
964 posts

Basic Tax Question

A coworker told me today that he and his wife are trying to get into buying properties to use as Air BNB, in order to lower their tax liability.

Could someone explain to me like I am 5 if this works and if so how? Thanks.


Tiger Prawn
Member since Dec 2016
19065 posts

re: Basic Tax Question
Deducting for depreciation maybe? But then that likely gets recaptured down the road if they sell the property at some point


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Im4datigers
LSU Fan
Northern Virginia
Member since Oct 2003
3440 posts

re: Basic Tax Question
Because they will write off every single expense they possibly can through the business. BUT the biggest reason is that you get to write off depreciation and interest so typically this will end up having the property show a net loss on the p&l/tax return.

A net loss with a business then lowers their personal tax liability (ie they make $200k in their job, property shows a net loss of $50k, they are only getting taxed on $150k income).

Look up depreciation on commercial. It’s your best friend.


Im4datigers
LSU Fan
Northern Virginia
Member since Oct 2003
3440 posts

re: Basic Tax Question
Yes there is depreciation recapture but if they sell the property and do a 1031 exchange they can avoid it.

Still a good tax write off regardless of the depreciation expense.


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LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
27898 posts

re: Basic Tax Question
The real answer is that with depreciation and expenses, he can likely have a taxable loss each year on the property, although there are rules that potentially limit how much of that loss he can take against other income.

The reality is a lot of people buy these and rent them out some but also use them personally and basically try to push through 100 percent of the expenses as a rental expense, even though they would get slammed on audit.


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