How do real estate investors actually use rental losses, REPS, the STR rules and cost segregation?
Rental losses are passive by default, which means they usually can't offset your W-2 or business income. Two paths change that: real estate professional status (more than 750 hours and more than half your working time in real property trades or businesses, with material participation in your rentals) or the short-term rental rules (an average guest stay of 7 days or less plus material participation). Cost segregation and 100% bonus depreciation make those paths worth far more, but only if you qualify first.
Who this is for
Business owners and high earners who own or are about to buy rental property.
Short-term rental owners who self-manage.
Investors with a spouse who can qualify for real estate professional status.
Investors planning a 1031 exchange or a sale.
Who it isn't for
Passive investors in syndications only, with no plan to qualify under REPS or the STR rules. We can still prepare the return, but there is little to plan.
Flippers running a dealer business. Different rules apply; ask on the call.
What we actually do
Qualification first, deductions second
The influencer version of this strategy skips the qualification rules. We test real estate professional status under §469(c)(7) and the short-term rental exception under Treas. Reg. 1.469-1T(e)(3) against your actual hours and your log before any study is ordered. If you're weighing the two, see REPS or the STR rules: which one fits.
Cost segregation and bonus depreciation
The One Big Beautiful Bill Act restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. A cost segregation study reclassifies part of the building into 5, 7 and 15-year property that qualifies. Studies cost real money, so we model whether the deduction is worth the fee for your property value and holding period before you buy one.
Material participation and the hours log
The IRS wins most of these cases on documentation. We set up the log and test it against the seven material participation tests before the year starts, not after.
Depreciation recapture and exit planning
Accelerated depreciation comes back as recapture when you sell. We plan the exit (hold, 1031 exchange, or sale timing) at the same time we plan the deduction.
Georgia and multi-state
Rentals in other states mean nonresident returns and credits for taxes paid, and Georgia doesn't follow federal bonus depreciation. We handle the state side with the federal side.
How it works
It starts with a free 20-minute intro call. Afterward, we send you the playbooks relevant to your situation, and if you want us to put them in place, we quote a fixed fee. Investors with an operating business get both reviewed together, because the S-Corp salary, the QBI deduction and the rental losses interact.
What it costs
Fixed fee, quoted after the intro call based on property count and whether a qualification strategy is in play.
Common questions
- Can rental losses offset my W-2 income?
Not by default, because rental losses are passive. If you actively participate, up to $25,000 of rental losses can offset other income, but that allowance phases out between $100,000 and $150,000 of modified AGI. Real estate professional status or the short-term rental rules remove the passive label.
- What counts as a short-term rental for tax purposes?
A rental whose average period of customer use is 7 days or less, or 30 days or less when you provide significant personal services. It then needs material participation for its losses to be nonpassive. See how the short-term rental rules work.
- How many hours do I need for real estate professional status?
More than 750 hours, and more than half of all the personal services you perform in trades or businesses, must be in real property trades or businesses in which you materially participate. Your spouse's hours can't be added to yours for these two tests. You then need material participation in the rentals themselves, which is why most investors with several properties make the election to treat all their rental real estate as one activity.
- Is cost segregation worth it on one property?
It depends on the building's value (land doesn't depreciate), how long you'll hold it, and whether you can use the losses now. Our article on cost segregation for a small portfolio walks through the math.
- Is bonus depreciation really 100% again?
Yes, for qualifying property acquired and placed in service after January 19, 2025, under the 2025 tax law. Georgia doesn't follow federal bonus depreciation, so the Georgia return depreciates the same property differently. See what the 2025 law changed.
- What happens when I sell after taking bonus depreciation?
The depreciation comes back. Gain up to the depreciation taken on 5, 7 and 15-year property is taxed as ordinary income, and depreciation on the building itself is taxed as unrecaptured section 1250 gain at up to 25%. A 1031 exchange into replacement property can defer it.
- Do I need a separate LLC for each property?
That's a legal question for an attorney. The tax answer is that a single-member LLC is disregarded and changes nothing on your return.
General information for educational purposes, not advice for your situation. Tax rules change; talk with a CPA before acting.