\n<\/p>\n
Need to estimate rehab costs<\/strong><\/a> or calculate <\/strong>ARV<\/strong> (after-repair value)<\/strong><\/a> on a property? For new investors<\/strong>, these tricky tasks can often make or break a deal. But, as always, our hosts are here to deliver some helpful tips!<\/p>\n Welcome back to another Rookie Reply<\/strong>! After diving into rehab costs, discussing hard money<\/strong><\/a>, <\/strong>and weighing the pros and cons of FHA loans<\/strong><\/a>, real estate tax strategist<\/strong> Natalie Kolodij<\/strong> returns to the show to deliver some extra tax advice<\/strong>. She talks about passive losses<\/strong> and why you need to carefully track them from year to year, as well as how tax benefits<\/strong> are allocated in real estate investing partnerships<\/strong><\/a>. Stick around until the end to learn the ONE mistake you can\u2019t undo on your tax return<\/strong>!<\/p>\n Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Natalie: Ashley: Natalie: Tony: Natalie: Tony: Natalie: Ashley: Natalie: Ashley: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is Real Estate Rookie Show 371. Do you know how to find a hard money lender? Does a Yelp exist for that? Or FHA loans? What are the pros and cons? We\u2019re going to find out today. I\u2019m Ashley and he\u2019s Tony.<\/p>\n
And welcome to the Real Estate Rookie podcast, where every week, three times a week, we\u2019re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.
Now, today we\u2019re going to be talking about tax strategy for real estate rookies, which is incredibly important. We\u2019ve got a special guest, Natalie Kolodij, who is on episode 368, and she\u2019s back to give you some more real estate strategies. But before we jump into that, first we want to talk about hard money lenders. What are they? How do you find the good ones? Let\u2019s dive in.<\/p>\n
Okay. Our first question is from Carl Anthony, \u201cHow do you decide what hard money lender to use? Is there some kind of Yelp or review system somewhere?\u201d This is like on the MLS, like a different website, Zillow, realtor.com. You can rate your real estate agent that you used on there.
I have not run across any kind of rating system. If you do go to the BiggerPockets forums and you ask people if they have recommendations or referrals or if you\u2019re thinking of using a certain lender, go ahead and post it into the BiggerPockets forums and see if anybody else has used that lender and get their experience from them.
I think one other thing you could do is search the county records too in your area because you are able to see who has a lien on property. And you can search that company you\u2019re thinking of using and find the mailing address of the property owner and call them up or mail them and just say, \u201cHey, I\u2019m wondering how was your experience using this hard money lender?\u201d Tony, what about you? What kind of ideas do you have for getting referrals or recommendations on hard money lenders?<\/p>\n
BP does have the lender finder, so that\u2019s a tool that you can use, Carl. And I think the biggest thing is that you want to date around a little bit. Talk to as many hard money lenders as you can, some of the big national ones, some of the more local ones, and just compare both the customer service and the cost of doing business with that lender.
Every hard money lender is going to have slightly different packages or products that they can offer to you. Some are going to charge you super high rates if it\u2019s your first time doing this, others are going to say like, \u201cHey, even if you\u2019re a first time investor, we\u2019ll work with you. No problems.\u201d I think talking to as many different hard money lenders as possible is good.
But what I\u2019ve found is that if you can just talk to someone who\u2019s already used a company before and get their firsthand experience, a lot of times that\u2019s the best way to let someone else do that homework for you. And then you\u2019re just drafting behind the hard work they\u2019ve already done. Now what I will say is for a lot of folks that I know that use hard money heavily, most of them have used multiple different companies in the past. A little bit of is a trial and error, just trying different companies to see what works, but that\u2019s what I\u2019ve seen, Ash, to help find that right hard money lender for each investor.<\/p>\n
And just real quick before we move on to the next question, some of the things you should be asking are not just bland questions like how was your experience or did it go okay? Would you use them again? Those are great questions, but get more into the nitty-gritty of it as to what was the process like when you had to draw money out for your contractors if part of the rehab cost was involved? What was it like when you closed on the property?
I had a very bad experience where we were supposed to close on a Friday and there was title issues because the hard money lender didn\u2019t do a lot of deals in New York state. And we had to wait and close until Monday until we could get a title attorney that had to come in and clarify that me and my attorney were correct and they were wrong. Asking specifics about the different fees that you\u2019re charged and the process of everything and also how much experience they have doing loans in your market.
Okay. Hopefully some of those questions and places to look for hard money lenders was helpful for you guys. We are going to take a quick break and we\u2019re going to come back and we\u2019re going to talk about estimating rehab costs. You\u2019re going to find out if Tony was born with a construction belt on his hip or if he had to learn all of these things too.
Okay. We are back after our short break and our first question is from Rebecca. \u201cBig newbie looking into BRRRR. For the rehab portion, how do you get the knowledge to estimate repair costs? How would you then estimate the ARV? Thank you in advance.\u201d This is a very common question is how do you learn this stuff? And first let\u2019s break down what BRRRR is. This is a real estate investing strategy. You can buy the property, you can rehab the property, you can rent the property, and then you can refinance the property and then repeat the process on another property. Then ARV is after repair value.
The first recommendation I\u2019m going to give, a super easy one, is the BiggerPockets Bookstore is The Book on Estimating Rehab Costs by J. Scott. But Tony, I think if you\u2019re a long time listener, everybody knows you don\u2019t know a ton about construction. You\u2019re learning, learning, learning as time goes on. But starting out you definitely weren\u2019t swinging the hammer so how did you become knowledgeable in doing rehabs?<\/p>\n
Yeah. First I think that there\u2019s a misconception from a lot of new investors that you have to be an expert in the actual rehab work itself. Like, oh man, I got to know how to lay tile. I got to know how to frame and hang drywall and I got to know how to repair a roof. That\u2019s not necessarily what it means to be a real estate investor.
If you look at Grant Cardone or Sam Zell or the guys running guys and girls running BlackRock and all these big hedge funds, they\u2019re probably not the ones that are laying the tile. It\u2019s all about making sure that you can factor those costs in, which I think is what Rebecca\u2019s question here is.
But what I found to do, and this was my approach, is when I did my very first rehab property, it was my very first out-of-state borough, that was my first real estate deal ever. My approach was super simple. I looked at my property, I got a very clear picture of what the current condition of that property was. I looked at other properties that had sold that were rehabbed in that market. And I took those rehabbed properties, I went to a few different general contractors and said, \u201cHey, here\u2019s what my property looks like today. Here\u2019s what I want it to look like. Please give me an estimate. Give me a bid on what it\u2019ll take to get the property from point A to point B.\u201d And I talked to three different contractors in that first deal, and that was what gave me a general sense of what I might spend when it comes to rehabbing a property.
Obviously J. Scott\u2019s book on estimated rehab costs is incredibly detailed. That\u2019s a great way to really nail that estimate step, but if you just want to, as beginner as you can possibly get, let the contractors who know those numbers like the back of their hands give you that number. And the goal of getting three is that you can average between those three different bids to find the most realistic cost.<\/p>\n
Yeah. And for me, I took on a partner who knew construction and I learned from him our good friend, Kara Beckman from Beckman House, when she would hire contractors starting out she didn\u2019t know a ton about rehabs or anything like that. And she would literally follow the contractor and ask questions like, \u201cWhy are you doing that?\u201d And not because she wanted to do the work herself, but she wanted a better understanding of how the work was done so that she would know if people were doing the work correctly or not. And she had a good comprehension of what she needed to actually get a project done too. That\u2019s something else you could always do. I mean, I think of my contractors and they would hate to have me over their shoulder, but maybe it\u2019s something you could pay for them to teach you a couple things.<\/p>\n
And that\u2019s another thing too. You could just follow the contractor around when they\u2019re giving you a bid and just ask those questions. And that starts to give you a better sense of what it looks like as well. But Rebecca, I think don\u2019t overestimate or don\u2019t over-complicate the estimation piece. If it\u2019s your first deal, lean on the expertise of the general contractor in that market.
But the second part of her question was the ARV, how do you estimate your after-repair value? And this step is honestly to me, way easier than estimating the rehab costs. All you have to do to estimate your ARV is identify properties that are similar and form function, size, et cetera, to your subject property and see what those properties sold for.
Now, there\u2019s some caveats here. First is time. You don\u2019t want to go back too far into the past. If you found a property, say it\u2019s a perfect model matched to your home, but it sold three years ago, you probably don\u2019t want to use that number. I know for me, I typically try and go to a 90-day window. If I can\u2019t find enough, then I might push it out to six months, but that 90-day window I found is pretty solid for me. Time is important.
Style is important as well. Say you\u2019ve got a single-family ranch style home that was built, I don\u2019t know in the nineties, you don\u2019t want to compare that to a two-storey new construction that was built two weeks ago. Because even if they\u2019re right next door, those are two different styles of home that might attract a different style of buyer. And usually the appraisals look a little bit different as well. That\u2019s a big one.
Proximity, you don\u2019t want to go, and this will vary from city to city. Ashley, where you\u2019re at, it\u2019s a little bit more rural, you\u2019ve got bigger parcels of land, you might be able to go out a little bit further. But in a traditional suburban setting, you probably don\u2019t want to go out more than a quarter of a mile, half a mile, start with that smaller radius first. Because again, if you go a mile out, you might be crossing a major highway, you might be crossing a major street that divides the city into two different sections. Those are the things to look for as you\u2019re looking for that ARV, for those comps for the ARV I should say.<\/p>\n
For a third question, we have one that says, \u201cCan someone please give me a rundown on the benefits or cons of using FHA loans? I\u2019m looking to purchase my first property with plans to house hack and save for my next investment.\u201d Okay. First thing Tony comes to mind for FHA loans, low down payment. Woo. Don\u2019t have to bring a lot of money to the table. Okay. We\u2019re talking three and a half percent to 5% down, but there are some conventional loans.
FHA loan and conventional loans are different. Conventional is your standard loan that you can go and buy a investment property, you could buy your primary, whatever that is. And that\u2019s usually 20%, but they\u2019re actually giving out that at 5%. My sister just went and got pre-approval and it was a conventional loan for 5%. Part of 5% down. Part of that pros and cons of using an FHA loan has been the con of having to do an FHA inspection.
If you\u2019re okay with 5%, you\u2019re going to be better off going the conventional route because you don\u2019t have to do that FHA inspection. You\u2019re going to do your inspection on your own, bringing in an inspector to tell you what repairs need to be done, doing your due diligence. But then FHA brings in their own inspector and they want to make sure that the property is habitable, that you can live in it.
Forget fixer uppers. The FHA isn\u2019t going to approve those. I remember when my cousin purchased a property, she was using FHA loan. And they had to install hand railings in certain spots because they were not up to code and that\u2019s one thing FHA flagged. There\u2019s different criteria that they\u2019ll look for in the inspection and they\u2019ll want to either have that fixed before closing or tell you that, \u201cSorry, we won\u2019t fund this deal.\u201d<\/p>\n
And I think as an add-ons to that, Ash, because a lot of sellers know and understand that those FHA inspections can be pretty rigorous. If you have maybe say you\u2019re offering $300,000 on this property and someone else is also offering 300,000, but you\u2019ve got FHA and they\u2019ve got conventional or some other type of debt, a lot of times all things being equal, all else being equal, the seller will choose the non-FHA offer over the FHA offer because they know that the likelihood of closing is higher.
That\u2019s another con of the FHA is that it can also make your offer a little bit weaker. Sometimes you might have to offer additional things, maybe a higher purchase price, maybe a bigger EMD, maybe, whatever it may be to kind of make the seller feel more confident about your ability to close. When we bought our first home, our first primary residence, we did conventional 5% down. And we had the option of either going FHA or conventional. We chose conventional as well. There\u2019s a lot that goes into that decision, but FHA is great for the down payment piece, but you got to make sure the property satisfies those requirements.<\/p>\n
Okay. We have a special treat for you guys. We know after three questions, you guys are sick of hearing us talk. we are bringing a guest today. We have Natalie Kolodij coming on today. And she\u2019s going to get into the one thing that you can never undo if your taxes are filed wrong. This means you can file an amended return for it. You can\u2019t go back in time and fix this.
Who can take losses with a partnership? We\u2019re also going to talk about that if you\u2019re in a partnership. Does everybody get the tax benefits? And we\u2019re going to go over so much more. Stick around. We\u2019ll be right back after this break with Natalie.
Natalie, thank you so much for joining us for this week\u2019s Rookie Reply. We always love it when we can have a special guest come on and give expert advice here. We wanted to start off with a question here as to what does a CPA need to know about you? What information should you be giving your CPA? And maybe these should be questions they should even be asking you. Natalie first if you want to give us a little background actually about you, and then we can jump right into that question.<\/p>\n
Yeah, absolutely. I\u2019ve been in tax for about a decade and specialized in real estate tax since 2017. And I\u2019m also a national tax educator, so I teach CE for other tax professionals all about real estate, so I get to see both sides of the coin. When it comes to things that you want to make sure your CPA knows or your EA and that they\u2019re asking about you, a big thing that\u2019s overlooked is looking forward.
We hear about a lot of tax strategies, but knowing which ones make sense for you, you should really make sure that they understand how quickly you\u2019re planning to grow and scale and what the next three to five years looks like for you to know what makes sense to implement today, what might make sense two years from now. And just create a roadmap for how you\u2019re going to grow and what pieces should be put in place to make sure you have the foundation for the specific growth you\u2019re looking for.
It\u2019s not one size fits all, so you want to just have that forward-looking talk with them about what your end goal is. Because I talk to some clients who are like, \u201cI want 40 rentals by the end of the year and want to be out.\u201d And for other people it\u2019s like a slow one a year, going to retire at 50. Getting on the same page with that will really help determine what applies to you.<\/p>\n
And then, what about any passive losses? Do they need to know about your income, if you have active income, passive income, things like that to help with your tax planning?<\/p>\n
Yeah. With passive losses, this is an area because again, with your long-term rentals, if your income\u2019s too high, if it creates a loss, it\u2019s passive and you can\u2019t always use it. What that means is a few things. Make sure you\u2019re tax professional, if you know that you had passive losses prior, maybe you switched to just using someone now or you switched firms, there\u2019s a worksheet that tracks those, passive loss carryover schedule. Make sure they have that and make sure you see it on your return.
These get lost track of easily when you switch software, so you don\u2019t want to lose those because they\u2019re like a piggy bank. Something else I\u2019ll hear from investors is, \u201cI can\u2019t use my losses this year. My income\u2019s too high so my CPA said not to worry about it. We\u2019re not going to try to generate more loss.\u201d And that\u2019s not the right mindset.
Even if you can\u2019t use those passive losses today, you still want to create as much of a loss as you\u2019re entitled to. And so you want to make sure you accountant knows everything you put in for cost. If you were traveling before you purchased the property and you had costs incurred there, you had inspections prior to purchase, maybe you paid a wholesaler or a bird dog fee, someone to find you this property, any of those costs they should know about. And those won\u2019t necessarily be in your books or they won\u2019t be on your purchase documents because it was prior. Make sure any costs that you incurred along the whole process, get in front of them.
And then even if it\u2019s creating a passive loss that you can\u2019t use today, you get to use it someday. You never want to just not maximize these. The way I like to describe this to people is your passive losses can build up and then you get to cash in on them at some point. And it\u2019s a lot like going to the arcade. And if you start earning those tickets and instead of getting to use a few tickets this year to get a piece of bubble gum, you get to save your tickets for 10 years and buy the pinball machine on the top shelf. That\u2019s what your losses are doing. Let those accumulate and then you just have this bank of loss.
When you inevitably sell a rental, which we all do every few years, we get tired of a market or it\u2019s gone up a ton of value or you just hate the neighborhood, whatever it is, that gain can be offset with those built up losses. You want to save your tickets for that top shelf item. You want to save your losses to wipe out that $200,000 gain.
Even if you can\u2019t take that $1,000 loss this year, build it up, keep accumulating it, and you\u2019ll get to use it down the road. They never disappear. Always strategize and always make sure anything you paid for it gets in front of your accountant.<\/p>\n
I have a lot of partnerships, Natalie. And I want to understand how these losses play out in joint ventures and shared LLCs, things of that nature. Before I do, I want to make sure I\u2019m tracking what you said here. It almost makes me think of everyone listening to this podcast is probably old enough to remember when cell phone plans had minutes restrictions every month. And then the cell phone providers started to promote these rollover minutes. Like, \u201cHey, if you don\u2019t use all your minutes this month, they roll over to the next month.\u201d
It sounds like the passive losses almost operates the same way where even if you don\u2019t use all of your passive losses for this year, they\u2019ll roll over to the next year, then they\u2019ll roll over to next year until you actually end up using them. It sounds like there\u2019s really no downside to trying to maximize your paper losses each year. But what I want to know is say that maybe you got bad tax advice. I\u2019m in the short-term rental industry. Say I bought a short-term rental in 2023, but I didn\u2019t do a cost segment because I didn\u2019t really need the write off. Can I now go back in 2024 to retroactively create that paper loss for 2023? What does that even look like?<\/p>\n
Yeah. With short-term rentals specifically because if they\u2019re under seven days and you participate, they\u2019re non-passive. We can often use those losses. Especially there, we want to be really strategic with creating them. When you buy a short-term rental in that year, you can do a cost segregation if you want. And what that does is separates out about 25% of the building value into stuff that you can almost always write off in that first year. It creates this large loss.
It is a year to year test is the other thing. The short-term rental, getting to use those losses is a one and done often. You have to keep buying more properties if you want to keep checking into those big losses. But it\u2019s also something that\u2019s looked at based on the specific year. What I\u2019ll hear from people is, \u201cWell, I don\u2019t want to manage it though to be able to get this loss. I want to hand it off.\u201d Or, \u201cI don\u2019t want to deal with a short-term rental. I want midterm or long-term. I don\u2019t have time for that.\u201d
If you buy a rental December 1st and furnish it and rent it short term for that month, where can you manage it for 30 days? Then January 1st you can make it a midterm. I do not care what you do on January 1st. There\u2019s no negative claw-back, but it\u2019s an annual test. If you are buying towards the end of the year, if you can have the average guest stay under seven days and manage it for just that time of that couple weeks left of the year, you would qualify to do this cost segregation and create a big loss you could use. That can be a really strategic tax plan.
If it\u2019s a couple years down the road and you\u2019re like, \u201cWait, my accountant never mentioned a cost seg. Can I do that now?\u201d You can. If it has been any more than two years, basically if the depreciation has showed up on a tax return for only one year, you can either go back and change that year and take the loss then.
Or there\u2019s a form 31 15 that says, \u201cI\u2019m going to change my accounting type, I\u2019m going to change my method.\u201d You can do that in any future year. What this means is if year two you decide like you learn about cost seg, you can file that form in year two. If you\u2019re in year five, you can file that form and do the cost seg and you get to take that extra depreciation in the year you file.
This is another good planning point because if in the year you bought the rental, you don\u2019t need those losses maybe. Let\u2019s say you already have a big loss from something else or your income isn\u2019t very high. You might want to wait until a couple years down the road, do your cost seg and take your losses that year with that form because maybe that year your income\u2019s much higher and so you want to have $100,000 write off.
It\u2019s always worth asking about a cost segregation and bringing it up with your accountant or your new tax professional, even if it\u2019s years down the road, because you can still do it. You can still go back and get that adjustment. Now the longer you own it kind of the less benefit there is. Because if you\u2019re in year 20 out of 27, we\u2019ve already sucked up a whole lot of those write-offs. But if you\u2019re in the first 10 years I would say, it is always worth looking at doing that cost segregation, even if you\u2019re in a later year.
And with bonus depreciation, that thing that says you can write off 100% of an expense if its life is under 20 years. That was dropping down. It was 80% for this year is supposed to drop to 60. There\u2019s current legislation that could pass that would bump it back to 100. But also with that amount, it\u2019s based on the year you put the rental in service. Any rookies who bought a rental between 2017 and 2022, put it in service. It is always worth looking at that cost seg because you\u2019re locked in on those 100%. It\u2019s based on the year you started renting it, not the year you do the cost seg.<\/p>\n
So much good information though. And I think it\u2019s reassuring for folks to know that even if you maybe missed it, maybe you got bad tax advice, maybe you didn\u2019t realize it was an option, you can still go back to try and make it sound.
One other questions I didn\u2019t want to touch on for the losses was partnerships. Again, I have a lot of different partnerships that I do. Most of them are joint ventures, but I think one that might be interesting, we just closed on our first commercial property. It\u2019s a 13 unit boutique hotel in Utah.
I own 21%. I have another partner that owns 9% and then another 70% is owned by two other partners. There\u2019s four of us on this deal. How does the losses work when you\u2019ve got a mix of four people that own a property together?<\/p>\n
Most often the losses are allocated based on ownership percentages. There\u2019s more complicated ways to do it, but there\u2019s a whole bunch of hoops. Just as a starting point, assume you\u2019re just getting your percentage. Something to caution about is if you\u2019re in a partnership with someone else and you\u2019re trying to do that short-term loophole, that material participation test you have to pass is based on each person. That person needs to materially participate to get the benefits.
If you do a cost segregation on that property, and let\u2019s say it has a $400,000 loss and you guys are all like, \u201cYes, this is going to be incredible.\u201d But Tony, you\u2019re the only one who put any time in on it. Your partners are passive and they\u2019re like, \u201cThis is awesome. Tony knows what he\u2019s doing, he\u2019s managing it, he\u2019s dealing with all the time, his hours are working on it. And we just sit back and collect a check.\u201d They won\u2019t qualify to take their portion of the losses against their income because they didn\u2019t materially participate. The most common tests are 100 hours and more time than anyone else, so you\u2019re pitted against each other.
On your large apartment complex, because the next test is 500 hours, so it\u2019s possible two people put in 500 hours, but on a single family, probably not. If you and a friend partner on a single family in the Smokies, if one person\u2019s putting in the time and the hours, their time\u2019s going to trump the more time than the other guy. If there\u2019s a short-term rental, there\u2019s a good chance only one of the people will meet that criteria to get to use the losses against their income. The other people still get their share of the losses. It just goes into that save your tickets bucket where they might not get to use it this year.
And one other cautionary tale is if you\u2019ve used an accountant who didn\u2019t know real estate, or even if maybe you didn\u2019t notice this, check your return. For that bonus appreciation, that awesome thing where you get to write off that big chunk, often 100% if you choose not to do that, there\u2019s an election on your tax return where you can say, \u201cAh, we\u2019re opting out of doing this. We\u2019re not going to take that big write off all at once.\u201d That\u2019s permanent. You can\u2019t ever change your mind about that.
If you are working with a new tax professional, look through all the pages of your return. And if you see something that says, \u201cUnder code 168(k), I\u2019m opting out of bonus,\u201d stop, pause, red flag, stop. Because once that\u2019s there, you can\u2019t go back and get it. Like you said, what if year five I work with someone new and I learn about seg and I want to go back and do it? You can always do it. But if they\u2019ve ever put that there saying, \u201cWe\u2019re not going to take this,\u201d we can\u2019t take it even if it\u2019s down the road.
Always look for that election and you don\u2019t want to have it. Before you sign off, if it says you\u2019re choosing to not take bonus and you\u2019re opting out, pause and tell them to please remove that. Unless there\u2019s a very specific reason, it really hurts you down the road when you decide to circle back and do a cost seg. You can\u2019t break out that 100% write off if that election has ever been on that asset.<\/p>\n
Basically what you\u2019re saying is that there is no going back and redoing it. This is one of the very few things that if you do it wrong or your tax preparer does it wrong for you, there\u2019s no going back for it. What would be one of the reasons that a tax preparer would actually check that box for you?<\/p>\n
Yeah. I\u2019ve got some great responses on this. I interviewed someone who by default kept doing that on the trial returns. And when I asked them why they kept opting out, they said they were just taught to always do that. Option one is just they don\u2019t know. They just always have. That could be it.
Sometimes there is a valid reason. I\u2019ve had clients where we actually want the loss spread out across five years instead of all at once. It might line up with their income better. If there\u2019s a specific reason to do that, sure. But I\u2019ve had a situation where a client had a campground. It was all assets where we could have used a ton of bonus depreciation, they did a ton of renovations. We could have had this huge write-off, but their prior accountant opted out of that. When I got it and I was like, \u201cThis qualifies for this short-term loophole, we can take these losses.\u201d We could, but we couldn\u2019t create those extra losses with bonus because they had just decided not to.
There\u2019s a handful of reasons they might. I think a lot of accountants do, because they either don\u2019t know short-term rentals can be non-passive. In their head they\u2019re like, \u201cThere\u2019s no reason to take it. They can\u2019t use the loss.\u201d And sometimes they just don\u2019t have a reason really. It\u2019s just why would we do this? Just be cautious. Just keep an eye on that because it\u2019s not revocable, so you can\u2019t ever change your mind.
It is on specific classes, so you can choose not to take it on only five-year stuff or only 15. There can be planning there. But if there was no discussion, if there was no talk about it and you have it on your return, definitely ask about it first.<\/p>\n
Well, Natalie, thank you so much for taking the time to come on this Rookie Reply. And if anyone listening would like to submit a question for us or an expert to answer on the show, you can go to biggerpockets.com\/reply.<\/p>\n