Conditional alternate — only if you qualify for material participation
Primary results above do not use the STR loss against other income. If you document material participation, estimates would be:
Federal tax: baseline vs with property (2026)
| Line | Baseline | With property | Change |
|---|---|---|---|
| Rental income/(loss) applied | $0 | $0 | $0 |
| Taxable Social Security | $40,800 | $40,800 | $0 |
| Adjusted gross income | $125,800 | $125,800 | $0 |
| Deductions (std + 65+ + senior) | $47,500 | $47,500 | $0 |
| Taxable income | $78,300 | $78,300 | $0 |
| Ordinary income tax | $7,700 | $7,700 | $0 |
| Capital gains tax | $0 | $0 | $0 |
| NIIT (3.8%) | $0 | $0 | $0 |
| Total federal tax | $7,700 | $7,700 | $0 |
| State tax (estimate) | $4,250 | $4,250 | $0 |
Loss treatment: Passive — suspended · Depreciation life 39 yrs · Suspended carryforward end of year 1: $101,909
Five-year projection
| Year | 2026 | 2027 | 2028 | 2029 | 2030 |
|---|---|---|---|---|---|
| Rent | $78,000 | $80,340 | $82,750 | $85,233 | $87,790 |
| Operating expenses | $32,000 | $32,960 | $33,949 | $34,967 | $36,016 |
| Mortgage interest | $27,709 | $27,403 | $27,076 | $26,726 | $26,351 |
| Principal paid | $4,396 | $4,702 | $5,030 | $5,380 | $5,755 |
| CapEx reserve | $4,000 | $4,120 | $4,244 | $4,371 | $4,502 |
| Cash flow after debt | $9,894 | $11,154 | $12,452 | $13,789 | $15,166 |
| Depreciation | $120,200 | $8,715 | $8,715 | $8,715 | $8,715 |
| Net rental (tax) | −$101,909 | $11,261 | $13,010 | $14,824 | $16,707 |
| Loss/income applied | $0 | $0 | $0 | $0 | $0 |
| Suspended carryforward | $101,909 | $90,648 | $77,638 | $62,813 | $46,106 |
| Fed + state tax savings | $0 | $0 | $0 | $0 | $0 |
| After-tax cash flow | $9,894 | $11,154 | $12,452 | $13,789 | $15,166 |
| Property value | $566,500 | $583,495 | $601,000 | $619,030 | $637,601 |
| Loan balance | $408,104 | $403,401 | $398,372 | $392,992 | $387,237 |
| Equity | $158,396 | $180,094 | $202,628 | $226,038 | $250,363 |
Short-term vs long-term
Long-term uses rent $38,000 and expenses $12,000; loss treatment: passive allowance; 27.5-yr life.
Sensitivity (year 1)
| Scenario | Cash flow | Tax savings | CoC |
|---|---|---|---|
| Base case | $9,894 | $0 | 6.4% |
| Rent −15% | −$1,806 | $0 | -1.2% |
| Rent +10% | $17,694 | $0 | 11.5% |
| Rate +1% | $6,538 | $0 | 4.2% |
| Expenses +15% | $5,094 | $0 | 3.3% |
| No cost segregation | $9,894 | −$1,545 | 6.4% |
| Participation: yes | $9,894 | $11,950 | 6.4% |
| Participation: no | $9,894 | $0 | 6.4% |
Depreciation & financing
Tax warning flags
- Participation uncertain — STR loss NOT applied
Losses are treated as passive and suspended. The conditional alternate shows results only if you meet a material participation test (e.g., 100+ hours and more than anyone else, or 500+ hours) with contemporaneous logs.
- Personal use days
Personal use counts against the 7-day/material-participation analysis and requires expense allocation.
- Suspended passive losses
$101,909 of year-1 loss is suspended and carried forward (Form 8582).
- Depreciation recapture
Bonus/cost-segregation property ($113,300) is §1245 property — recaptured as ordinary income on sale. Structure depreciation is taxed up to 25% (unrecaptured §1250).
- QBI deduction not modeled
Rentals may qualify for the §199A 20% deduction if a trade or business (e.g., 250-hour safe harbor). Not included.
- Basis and at-risk limits
Losses are also limited by your tax basis and amount at risk (§465). Assumed sufficient with recourse/qualified nonrecourse financing.
- State conformity
Many states decouple from bonus depreciation; state savings shown assume conformity and a flat rate.