Understanding tax benefits (REPS + bonus depreciation)
Understanding tax benefits (REPS + bonus depreciation)
Underwrite's Tax Impact tab (available on Pro and Professional plans) models two of the most significant tax advantages available to STR investors: Real Estate Professional Status (REPS) and bonus depreciation.
Real Estate Professional Status (REPS)
What it is: An IRS designation that allows qualifying investors to deduct rental property losses — including paper losses from depreciation — against ordinary income (including W-2 wages) rather than treating them as passive losses.
Why it matters: Without REPS, depreciation losses from a rental property can only offset other passive income. With REPS, those same losses can offset your salary, consulting income, or other earned income — generating meaningful tax savings.
Basic qualification requirements:
- Spend more than 750 hours per year in real property trades or businesses in which you materially participate
- Those activities must represent more than 50% of your total working hours
Underwrite's analysis: The Tax Impact tab estimates whether your projected time commitment meets the IRS criteria and shows the potential income offset in dollars. This is an analytical framework — not a legal or tax opinion. Consult a CPA before filing.
Bonus Depreciation
What it is: An IRS provision that allows investors to deduct a large portion of a property's depreciable assets in Year 1 rather than over 27.5 years.
How it works for STR investors: Through a cost segregation study, certain property components (appliances, flooring, fixtures, landscaping) can be reclassified as shorter-lived assets eligible for accelerated depreciation. A $350,000 property might generate $60,000–$80,000 in Year 1 deductions.
Combined with REPS: If you qualify for REPS, Year 1 bonus depreciation losses can offset ordinary income — creating a significant tax benefit in the first year of ownership.
What Underwrite shows you
The Tax Impact tab includes:
- Estimated Year 1 bonus depreciation opportunity (in dollars)
- Full depreciation schedule over 10 years
- Projected tax savings based on your income bracket
- REPS qualification analysis based on projected time investment
Important disclaimer
Underwrite's tax analysis is educational and analytical. It is not a substitute for advice from a licensed CPA or tax attorney. For complex situations — especially REPS filings and cost segregation studies — use these outputs as a starting point for your tax advisor conversation.