Mark Kohler shows how a $100,000 down payment on a short-term rental can generate $210,000 in first-year tax write-offs. Cost-segregation reclassifies $160,000 of the building for faster depreciation, and $50,000 in furnishings and repairs qualify for immediate deduction. The mortgage increases your tax basis, so you get the deductions while the property still cash-flows.
Chapters
Tax benefits can be extremely powerful. Let's say a client buys a short-term rental for $500,000 and puts down $100,000 as a down payment, 20%. Now to properly furnish it and place it into service, let's estimate on another $40,000. So we're into this thing $540,000. A cost segregation analysis typically going to allocate around 40% to this type of property that can be written off in one fell swoop. So 40% of $400,000, remember that's the amount we've allocated to the building, is $160,000. Oh, but we're not done yet. We've spent $40,000 on furnishings, repairs, and some other things. And we even had a cost segregation analysis. So we might be in another 50 grand. So I've just chalked up over a $200,000 write-off. It could be $210,000 in that example, but I only put down $100,000. Wow. Now, why am I allowed to do that? Because I qualified as a short-term rental. I materially participated and I had basis. Something we didn't talk a lot about, but you're signing on that mortgage loan, so that increases your basis and allows you to take that write-off. So I'm going to get over $160,000 in depreciation, $50,000 in furnishings and other expenses in that first year, a $210,000 write-off, and the property still cash flows.
