Success Story: How a CEO Significantly Reduced His Tax Burden with a Short-Term Rental
Meet Ron
Ron is the CEO of a successful tech company in Silicon Valley. Like many high earners, he was facing a hefty tax bill in 2023 due to his substantial W-2 income. Determined to find effective tax-saving strategies, he stumbled upon a YouTube video that introduced him to the little-known world of short-term rental (STR) tax strategies. Intrigued, he decided to dig deeper and turn that knowledge into action.
Facing Challenges
At first, Ron hit some roadblocks. He spent countless hours researching and soon realized that his long-time CPA wasn’t well-versed in STR tax benefits. Local realtors were in the same boat—none had much experience with STR investing.
Then, everything changed when his friend Jay, a real estate agent, came to visit. Though Jay wasn’t familiar with STRs either, he was eager to learn alongside Ron, setting the stage for a collaborative journey.
The Breakthrough
After four months of hard work, their efforts finally paid off! Jay helped Ron find a beautiful 3-bedroom home just 10 minutes from San Jose Airport, perfect for executive travelers. Ron’s wife, Sarah, took the reins on design and furnishings, creating an inviting space that they listed on Airbnb. With Sarah managing the short term rental directly, they met the Material Participation requirements, a crucial step for maximizing tax benefits. (Note: Understanding Material Participation is essential for this strategy. Schedule a free 30-minute discovery call to learn more.)
To further execute their strategy, Ron brought in a cost segregation firm to conduct an engineering study. This allowed his CPA to apply significant bonus depreciation write-offs against his active income.
Remarkable Results
Within 24 hours of launching on Airbnb, Ron and Sarah received their first booking, quickly followed by many more. Working closely with their CPA, they were able to accelerate depreciation on their STR and apply the write-offs against their high W2 income, leading to substantial tax savings in the first year of ownership.
The STR racked up almost 90 five-star reviews, with close to $80K revenue in its first year. With refinancing opportunities on the horizon thanks to expected rate drops, Ron is excited about even greater net revenue ahead.
Simplified Example of Potential Benefits
*Assuming you purchase a $1.5M property and operate it as an STR before the end of 2024.
*You meet the Material Participation requirements.
*You conduct a cost segregation study, allowing you to accelerate $375,000 of the depreciation (25% of the $1.5M purchase).
*Collaborating with an experienced CPA, you write off $225,000 (60% of the bonus depreciation allowed in 2024) against your adjusted $250,000 gross income.
Potential Tax Savings for the 2024 Tax Year:
*$54,000 (24% tax bracket, married filing jointly)
*$78,750 (35% tax bracket, single filing)
Looking Ahead
Fueled by the success of their first STR, Ron and Sarah are now investing in a second property, aiming for continued tax savings in 2024.
Ron’s Message to Fellow Professionals
"There are plenty of tax-saving strategies available, and short-term rentals stand out as one of the most effective. If you have a high income and hold significant RSUs, it’s worth exploring these opportunities. Consult with professionals who specialize in STRs to save time and maximize your tax savings. You might be amazed at how much you can save!"
Disclaimers
This case study reflects real experiences, with the investors' names changed to Ron and Sarah to protect their privacy. The content should not be interpreted as tax or legal advice.
Ron and Sarah have utilized various short-term rental tax strategies, including research into local STR regulations and a cost segregation study, with guidance from experienced professionals such as CPAs and attorneys specializing in real estate and tax strategies, ensuring compliance and maximizing tax benefits.
Bonus depreciation is currently set at 60% for 2024 but will decrease by 20% each subsequent year until it is phased out in 2027. To maximize your tax savings through this strategy, it’s crucial to act quickly by purchasing your short-term rental, ensuring it generates cash flow, and conducting a cost segregation study.
We strongly recommend that investors consult with a CPA and attorney who specialize in short-term rental strategies to discuss their individual circumstances before purchasing a property. If you require assistance in finding
If you require assistance in finding qualified professionals, we are more than willing to provide referrals.
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How We Can Help!
You can invest in a short term rental and benefit from the potential tax savings without spending days and nights researching the process or finding experienced professionals like Ron did. That’s where our services come in!
At Savvy Breezy Vacation Rentals, we specialize in helping short-term rental investors:
- Maximize revenue
- Save time
- Streamline operations
- Enhance guest experiences
Our data-driven strategies, cutting-edge automation tools, and insider expertise make all the difference.
Services We Offer
✓ Pre-launch Assistance
✓ Listing Optimization
✓ Design & Guest Experience Improvements
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✓ Coaching & Ongoing Support
Discover how to save significant taxes while generating revenue with a short term rental. Schedule a free 30-minute discovery call today.