100% Bonus Depreciation Is Back Permanently (And Most High-Income Professionals Still Don't Know It)

We're a big user of the SDR taxable.

We think that the SDR taxable, just to broadly define it, is you are able to buy a short-term rental, take bonus depreciation against that, and offset against that.

Offset that depreciation expense against your active income.

And you do that, and it's part of the tax code.

There's certain things you have to do, which we're going to talk about today.

If you are working, you know, you're a high income professional, there are very, very few ways to reduce your taxes legally.

This is one of those very few ways.

It's only been back for a year with the one big, beautiful bill, and it's been a big topic.

So, you know, as the licensed tax professional here, not me trying to explain it, but maybe just broadly define the STR tax loophole for the listeners here, if you don't mind.

Yeah, for me, the real estate tax all started when I was working at my first accounting firm.

I was doing two tax returns one day and like one tax return was for a married couple making 200 grand a year, W-2.

Another tax return was for a guy who owned a bunch of apartment buildings in Chicago.

He paid less in taxes than the married couple.

So I went to my boss and I was like, did I do this wrong? Am I going to get fired? He's like, no, it's because he's a real estate professional or it's because

he's a real estate investor.

And I was like, huh?

I have to learn everything that there is to know about this.

So I started studying like the real estate tax code, particularly the section 469.

And in those rules, there's a little carve out for, well, hey, if you have a property, if you have a property where you're renting it out on average seven days or less, then it's not considered a rental property and it's not subject to those passive activity rules like a long-term rental or a multifamily building would be.

And instead, it's actually treated as a business.

And in order to deduct that business loss against your active income, you have to materially participate, which means you have to spend a lot of working hours in the property, 100 hours and more than any other person, or you spend 500 hours total across all your properties.

It's just so funny because it's just this little couple of sentences, maybe, probably less than 300 characters where there's the exceptions to the rule.

But it's that little... paragraph that sparked this whole thing over the last, I would say, six, seven years with the short-term metal loophole.

And back in 2020 through 2023, people could put 10% down on a property, super low interest rate.

They were getting more than their down payment back in the form of tax savings.