Why Should You Purchase a Short-Term Rental in the 4th Quarter?


Last year was an incredible year for the housing market, with record-low interest rates and the highest number of home sales in 15 years. However, it is no secret that the housing market has been on a roller coaster ride over the past years. With the heightened mortgage rates and concerns of a future housing market crash, some people have turned away from real estate nowadays.

With the year nearing its end, some people may be questioning whether now is still a good time to invest in real estate. Although 2022 is coming to a close, there are still opportunities for rental investors who are willing to purchase in the 4th quarter. The fourth quarter offers some unique benefits that can be advantageous for rental investors.

There are multiple ways rental investors can benefit from the last quarter of 2022 by purchasing a short-term rental property. Firstly, short-term rentals are a great way to dip your toes into the real estate market without having to commit to a long-term lease. Moreover, many people are already preparing for the holidays and will be looking for places to stay near their family and friends. This provides investors with a lot of opportunities to rent out their properties at higher prices than usual.

In addition, if you would like to benefit from the 100% bonus depreciation, now is your last chance to act. The 4th quarter of 2022 is the last time to benefit from bonus depreciation, which is a tax break that enables businesses to deduct a more significant percentage of the cost of eligible assets in the first year. This incentive was created as a way to help businesses invest in new equipment and stimulate the economy and this quarter is your last chance to take advantage of this incentive.

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You can also save money on taxes in 2022 by renting the property for a short period within the quarter and materially participating in the management. To qualify, you should meet one of the 7 material participation tests. The most common material participation test for investors in the 4th quarter are:

  • If you spend more than 500 hours on the activity.
  • If your involvement in the activity is considered substantial compared to others during the tax year, including those who don’t have any interest in the activity.

The second test is difficult to pass if you purchase a property at the beginning of the tax year because you would have to complete all the work such as repairs and cleaning yourself without hiring anyone.

  • If you spend more than 100 hours on the activity during the tax year, and your participation was equal to or greater than any other individual’s (including those who didn’t own an interest in the activity).

This test is more achievable since it allows hiring additional workers, but you should still exceed their hours to qualify.

All in all, if you buy a short-term rental property and put it into service before December 31, 2022, and satisfy one of the material participation tests, then you can deduct your “losses” against your nonpassive income (wages/salaries, 1099 income, investment income, etc.).

When it comes to your taxes, don’t try to go it alone. The tax code is complex, and there are countless deductions and credits that you may be eligible for but not know about. That’s where Manay CPA comes in. We are experts in tax planning and consulting, and we can help you maximize your deductions and credits so you pay the least amount of taxes possible.

Don’t wait until the last minute – contact us today for a consultation. We can help you get organized and make sure you are taking advantage of all the deductions and credits available to you. Let us help you save money on your taxes this year!

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Manay CPA is a reputable, full-service CPA firm based in Atlanta, Georgia. Founded in 2001, we provide comprehensive accounting and tax solutions to individuals and businesses across all 50 states.

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