The 7-Day Short-Term Rental Tax Strategy for High-Income W-2 Investors

Ryan Carriere (00:00)
I’ve got my 2,000 hours a year job being in tech at Nvidia or Meta, wherever, and they just have to rent it a certain way, meaning get an average of seven days or less, and then put in, say, a hundred hours or more than anyone else, right? That’s not hard. That is like a one week PTO with your spouse. You know, fifty hours, fifty hours combined is a hundred hours. Okay. So it’s not difficult. And then when we say, “Hey, you went and bought a five hundred thousand dollar cabin in, I don’t know, Tennessee, like the Smoky Mountains or something.” Now we can say, “Hey, we got a hundred thousand dollar loss and we just saved you thirty-five thousand dollars in taxes.”

Dylan Silver (00:00)
Hey folks, welcome back to the show. Today we’re joined by Ryan Carriere, the founder of Carriere Tax Consulting, where he helps real estate investors reduce their tax burden through proactive planning. Ryan, thanks for joining us here today.

Ryan Carriere (00:13)
Thanks for having me, Dylan.

Dylan Silver (00:15)
What are some of the biggest ways that you see investors potentially lacking in their tax strategy or preparation?

Ryan Carriere (00:25)
I think a lot of people who buy real estate know that real estate as an asset can produce a tax-efficient investment, but they actually end up buying the wrong asset type. So if you want me to just dive into that, I’m happy to. But essentially we can get into tax technical things pretty quickly here if we want. But at the end of the day, a lot of people who hear real estate investing and “I want to become, you know, a real estate mogul”—whatever phrase they’re gonna throw out—they just think multifamily, single family, small multifamily, right? “Hey, I go buy a duplex, a fourplex, and I’ll buy one a year, one every couple of years. Maybe I do a house hack.” Okay. If you’re, for example, like most Americans working a full-time W-2 job, and you go buy a multifamily, which is gonna be a long-term rental, if we think about the tax world, any sort of loss that gets generated there, especially if you’re a high income earner—which is who I work with, kind of $500,000 plus in income on an annual basis—you’re not going to be able to use any losses that come from that rental property to offset, say, your W-2 income. Okay. And that’s because of the passive activity loss dilemma, which I’m happy to dive into. But that’s kind of the first criteria. I could just go on and on, Dylan, so I’ll slow down before I just monopolize our time. But that’s kind of the first thing, is they buy an asset thinking it’s gonna get them tax savings to lower, say, their W-2 or business profits that they might have, and they file their tax return and they find out, “Oops. I bought the wrong thing, I need to go buy something else,” or “Hey, real estate just wasn’t my thing,” and they kind of give up.

Dylan Silver (01:57)
Now, when we talk about buying the right asset class, does this mean that if folks are operating specifically in one asset class and it’s not the most efficient for taxes, that they should maybe consider pivoting?

Ryan Carriere (02:11)
Maybe. And that’s the part where I always say, “Don’t let the tail wag the dog,” meaning don’t let tax savings dictate the investment decision exclusively. Okay, it should be a part of the equation, a part of the variables that you consider, but it shouldn’t be the first filter or criteria that you think through of, “Hey, am I gonna get tax savings to offset my W-2?” But when clients come to me, it is a huge part of what they’re already looking for because they’re making, again, I said five hundred thousand, it could be a million, two million a year. I work with some people who work at Nvidia and other companies, tech companies that you’ve heard of, and they’re like, “I’m getting crushed with RSUs and all this stuff. I want to pay less taxes. I’m doing the base-hit stuff like my HSA, I’m doing my 401(k), I’m doing the, you know, all the other things, the 529s, but what else can I do?” And if you’re a W-2 high income earner, the options are limited, right? Business owners get all sorts of things, right? What can you do to get more expenses through your business? Things like that. Augusta Rule—maybe even that one is borderline for a lot of people. But W-2 earners, again, which is most of the Americans who are listening, those are going to be harder to get. And therefore, we actually start talking through things like real estate professional status, which would allow you to actually use losses from long-term rentals to offset your W-2. Or more common in my practice is the short-term rental tax strategy. And that’s actually turning short-term rentals into, then again, non-passive to offset that W-2 or business income. But again, to answer your question, it shouldn’t be the exclusive filter or criteria, but it should have some weight if that’s a goal that you have. So yes, it’s kind of a mixed answer there.

Dylan Silver (03:53)
Let’s talk about the short-term rentals. And you mentioned how there’s some specific tax strategies there. Without giving away all the gold here, Ryan, but a little nugget for our audience: how can people look at short-term rentals from a tax strategy perspective?

Ryan Carriere (04:08)
So the common misconception is that in order to get losses to offset their W-2 or business profits, they have to meet real estate professional status, and that is going to require 750 hours and more than half their time. Okay, for most—maybe your listeners, that’s more common. Like if you’re a full-time real estate agent, check the 750, probably check the more than half your time, if that’s kind of exclusively what you’re doing. But then you still have to materially participate in the long-term rentals. And if you have one, sorry, that’s just gonna be hard to do unless you’re heavily involved in like some big renovation. Okay. So then enter short-term rentals, and it actually only has two criteria, which is number one, the average stay per guest is seven days or less, and you then materially participate in the short-term rental. But the benefit there is I’ve said nothing about 750 hours, more than half your time, and what you do. And therefore that works for full-time W-2 folks, right? Because they could say, “Got my 2,000 hours a year job being in tech at Nvidia or Meta, wherever,” and they just have to rent it a certain way, meaning get an average of seven days or less, and then put in, say, a hundred hours or more than anyone else, right? That’s not hard. That is like a one week PTO with your spouse. You know, fifty hours, fifty hours combined is a hundred hours. Okay. So it’s not difficult. And then when we say, “Hey, you went and bought a five hundred thousand dollar cabin in, I don’t know, Tennessee, like the Smoky Mountains or something.” Now we can say, “Hey, we got a hundred thousand dollar loss and we just saved you thirty-five thousand dollars in taxes.”

Dylan Silver (05:43)
Sign me up for one of those every year, right?

Ryan Carriere (05:45)
That’s thirty-five thousand dollars back in your bank account every year. And you bought real estate, and you get the cash flow, and you get the debt paydown, and you get the appreciation. If you’re listening to this and you can’t get the tax savings, that thirty-five grand, how long is it going to take you compared to someone who can use the short-term rental strategy, do a cost segregation study and do that once a year? It’s gonna take you a lot more time to get that if you’re only looking at the first three, which is not including the tax savings.

Dylan Silver (06:15)
I appreciate the granularity here. When we talk about full-time real estate designation status, right, and you mentioned the hundred hours there, what does that break down to? What types of documentation do people need to show in order to show that they are operating in those hundred hours?

Ryan Carriere (06:35)
Yep. So some sort of time log. So just like you would think about, you know, keeping track of your time in some way, shape, or form, usually it’s going to be a spreadsheet. There are time tracking apps out there that can kind of help you keep track of this, but it’s essentially going to be a log of true material participation time. So think about, just for some examples, management time. Okay. So if you’re managing your own short-term rental Airbnb, right, that’s what we’re talking about, essentially you need to make sure that you’re probably involved in some level of management. If you hired it out exclusively to a property manager, it’s going to be more difficult for you to get the hours. Or second, you’re gonna put in some of that repair time, the improvements that you might do, putting together furniture for your first year, right, some sort of landscaping stuff. All that’s also material participation. Now there’s all sorts of things and types of time that don’t count, like investor hours or traveling to your property generally doesn’t count. Education like listening to this podcast, something like that, a lot of that stuff’s not gonna count. So you have to be involved in some of the operations or part of the actual physical property itself to really say that’s material and then write that down into a time log.

Dylan Silver (07:45)
Now when we talk about being able to balance this with a job, right? You mentioned being able to take, you know, time off and do it that way. One of the challenges that people often mention with short-term rentals is, well, there’s gonna be changeovers, there’s gonna be, you know, increased ownership burden because you’re gonna be managing changeovers, you have increased communication. For folks who have a somewhat or a very intensive W-2 job, how can they marry those two worlds effectively?

Ryan Carriere (08:14)
You get a co-host. So you’re the main host, but you get a co-host, right? So you kind of split responsibilities to say, “Hey, I’m gonna be the primary face. I’m going to do all the setup. I’m going to do this, the listing itself,” because these are kind of one-time activities which are going to help you stack up the hours. But then when a guest has a question and it’s midnight or a holiday, you’re paying 12%, 15%, 10%, right, because they’re co-hosts. They’re not exclusively doing everything. So it’s not the full-blown property management prices for short-term rentals. They’re responding to those things. Well, even if they are doing that, the actual response time is 60 seconds, you know what I mean? But it takes off the mental load of “I have to be constantly on my phone,” and you can now say, “Hey, you take care of all the day stuff while I’m kind of working, and I’m gonna take care of these kind of once in a while big things that I can manage when I don’t have to be extremely responsive to a guest.” So that’s typically how that gets solved.

Dylan Silver (09:13)
Pivoting here: cost segregation. I love cost segregation because it’s one of these terms which has now entered into the real estate vernacular and more so now maybe than in previous years. When we look at short-term rentals specifically, what are the big action items that people should be looking at when it comes to cost segregation?

Ryan Carriere (09:32)
Yep. If you actually qualify for the short-term rental strategy—seven days or less average on a property—and you can meet one of the material participation tests—we just talked about one of them, which is the 100 hours and more than anyone else test—if you can meet that, you’ve now turned a rental property, the short-term rental, from being passive, which it is by default according to the IRS, now into the non-passive category. And that’s how you actually get it to be in the same column or bucket as your other W-2 business profit income. Okay. So once you’ve done that, now you say, “Well, I want to get as much loss as I can, right?” And we can from a cost segregation study. The cost segregation study is going to allow you to break up that purchase, call it the $500,000 one in my example, and break it into smaller component parts. So more specificity into things that are going to be five-year property, which is personal property is what they call that. It’s not actually personal like our primary residences, but things like appliances, light fixtures, cabinets, countertops, those are gonna be called out by the engineering firm doing the study. But then you’re also gonna get 15-year land improvements. That’s gonna be things like, just like it sounds, the land, like the fencing, the driveways, the sidewalks, things like that. Those are five and fifteen and they’re less than 20-year property. Therefore, it’s eligible for 100% bonus depreciation. Now that we have the One Big Beautiful Bill Act that came out on July 4th, 2025 of last year, it brought back 100% bonus depreciation permanently for assets that have a life of less than 20, hence the five and 15-year life.

Dylan Silver (11:04)
Now, for folks who are looking at cost segregation and they’re trying to understand exactly how this applies to their active portfolio, is there anything that they can do if they’ve already purchased the property, you know, even several years ago, or is this only for new purchases?

Ryan Carriere (11:19)
Not only for new purchases. You could do kind of like a retroactive cost segregation. So for example, if you bought the property in 2023 and you didn’t do cost seg, it didn’t make sense to, or you didn’t know about it, right? And now it’s 2026, and you want to include this on the following year’s tax return, you could order a cost segregation study now. But you need to then also file in this year’s tax return—when you’re gonna use it—Form 3115. Okay. And you’re gonna have a what’s called a 481(a) adjustment, which is gonna show this big negative, and that’s gonna be associated to that rental property. And you’re essentially using this form to say, “Hey, IRS, I’m changing the method for how I’m calculating my actual depreciation for this property.” You answer all sorts of questions. It’s a huge, huge form, like 10-page attachments that have to go into that. Usually it’s pretty extensive. And then this big calculation to explain, “How did you get there?” So it’s a bunch of administrative work and parts to it, but it is something that you absolutely can do. And yeah, even if you bought the property in 2022, 2020, like it doesn’t matter, you can go back. But you need to do an analysis of “Have I already depreciated so much of this property that that Form 3115, the 481(a) adjustment, is worth it, or is it just it doesn’t make sense to?”

Dylan Silver (12:37)
You know, when we look at a tax strategy as a whole—and this ties into what we were talking about in the green room, having your books in line—what’s the gamut, the spectrum of organization that you see people coming to you with, from ultra high-level to folks who may just be getting started?

Ryan Carriere (12:55)
Yeah. Folks just getting started typically don’t have much in terms of organization. It’s all new to them. And I work with a lot of clients in those shoes where they’re buying their first short-term rental, right? They’ve been a full-time W-2 high income and they’re like, “I gotta do something different,” right? Especially with 100% bonus depreciation back. They know that real estate can be a tool. So oftentimes they’re starting with some sort of spreadsheet, just keeping track of stuff. Sometimes it’s a, “Hey, I’ve got some personal expenses and business expenses on one credit card.” Okay, that’s a mess. So first we want to just kind of split out, “Hey, you’ve got a business account, like a business checking account, and or a credit card separate from your personal stuff.” That’s like step one, right? Kind of separate them out, assuming you already have some sort of business setup, maybe it’s an LLC that you register it with the business, right, in the business’s name. And then from there you want to think through, “How extensive do I need to get with a system, right?” So something like a bookkeeping software like QuickBooks Online is very popular and out there. There’s also a ton more that have just come out in the last few years. Some of them are free, some of them are paid. QuickBooks Online, if you’re gonna work directly with an accountant on this, they’re gonna prefer that. You can just give them access, they can pop in there and pull the reports that they need. And it’s just a lot more kind of free-flowing and dynamic in that regard. But yeah, otherwise, yeah, I’ve got clients who have bigger portfolios, they’ve got someone who’s completely taken care of their bookkeeping and they’re pretty hands-off, and they just have a storage space for their receipts and things like that.

Dylan Silver (14:21)
One of the challenging things that I’ve noticed is people don’t often know where to turn to, and sometimes it’s like behind a cloak and a dagger when you’re trying to find a good tax advisor, a good bookkeeper. And so if folks are looking for that person on any side of the financial advisory, tax advisory, bookkeeping perspective, where can folks go and what type of questions should they be asking prospective people in place before they go ahead and bring them on board or have them do their taxes?

Ryan Carriere (14:53)
Yep. “What percentage of your clients are in real estate?” And if they can’t answer that or they don’t have like more than fifty percent, it kind of tells you they’re just a generalist, and you need to be okay with that, or you at least be now going in with your eyes wide open. Okay. But if you’re like, “Hey, I’m really serious about my real estate, and this is going to be a bigger and bigger and bigger part of my portfolio and my assets and my net worth,” you may just decide, “I need to have a real estate specialist,” whether that’s a bookkeeper—which I don’t do bookkeeping anymore—a bookkeeper, a tax preparer, and/or a tax strategist. And sometimes those are three different people. Sometimes it’s all one firm, but doing kind of all three within three different people in the firm. So I would first ask, if you’re listening to this, you’re probably in real estate, “What percentage of your clients are in real estate, right?” So you need to then get specific of, “Okay, are they big portfolios? Are they like, ‘Hey, I bought one property, but that’s the extent of all of them, right?'” In my firm, every single one of my clients has real estate except for one, and he kind of backed out last second, but I still took him on. So all of mine except one are all in real estate, and that’s kind of my specialty where I play in as a tax strategist. Yes, I file taxes for my clients, but only if they do the tax strategy with me. But you also just want to get specific on anyone you deal with: if you’re serious about growing real estate, do they have that specialty? Because it is nuanced, right? Depreciation, you’ve got all these other things of keeping track of basis and all these things. You probably want to have some sort of specialist who’s very familiar and comfortable with this industry.

Dylan Silver (16:26)
Now, when we talk about the differences between a generalist and a specialist, you know, people may think, “Well, if this person’s filing taxes, then they have to be familiar with all of the code.” But the code is so complex and it’s changing all of the time that having that specialty really does go a long way. How large, by the way, is the real estate tax preparation community? Does everyone kind of know each other?

Ryan Carriere (16:53)
There is a lot of them out there. Just because of the space I’m in, I feel like I know a lot of them, but seems like every year there’s kind of a growing population of them. I mean, BiggerPockets is a place where you could always go find, you know, hey, they have like whole sections of “I’m looking for a lender,” “I’m looking for wholesalers,” “I’m looking for…” like all these things on there. And that’s kind of where I got started, which is why I’m referencing them, kind of into the real estate and tax combination there. So, but yeah, it is, but it’s also growing, and it’s just gonna continue to grow, to be honest. But yeah, it’s complex and it changes every once in a while, like with the new tax bill I was talking about that came out last year. So it continues to evolve and change. And thankfully I’m in a community of people who are really good at this, and so I can always just bounce ideas off of them just to kind of stay up and kind of bounce ideas off each other.

Dylan Silver (17:42)
Do you see a majority or a plurality of your clients coming from any one geographic market in the country, or is it an even spread?

Ryan Carriere (17:52)
It’s usually the more populated—yeah, I’ll say this, usually higher populated, but it’s gonna be like, for example, New York, Florida, California, and Texas. Those are the big states where most of the population is, so it’s just kinda like by default, maybe just chances. But also there’s a lot of income and a lot of wealth that have been transferred to those states. You think of California, you’ve got all the tech people that I was talking about. Florida, a lot of like retirees. Texas is really growing and booming; it’s also just a big state with, you know, Austin, Texas, and all the stuff that’s going on there. And then New York, obviously you’ve got all the kind of financial Wall Street people up there. So those are kind of my main groups. But I’ve got essentially people all throughout the country that come to me.

Dylan Silver (18:36)
If you’re looking at Texas in particular, I’m a Texas licensed realtor. You know, one of the interesting things is there’s so much new construction happening in Texas that it feels like this is a niche entirely separate from what people had been looking at over the past decade or so, where there might have been more flips happening and more forced appreciation through rehabbing existing properties. For folks who are developers and working ground-up construction, is there a specific niche within real estate tax strategy even for that?

Ryan Carriere (19:14)
They would probably be looking at cost segregation studies and depending on where you fall into your work, you might meet real estate professional status. So, like if you were working with me, that would be something that I would compare with you. But then I would also just wonder, if you’re the owner of that, are there specific just general business things that we could look at? What’s the entity structure that you have? Do you have kids? Are you paying your kids? Could we, you know, maybe consider like the Augusta Rule again, something that we could talk about? Or just like general, like if you also own rentals, right? Hence why real estate professional status, are you taking advantage of everything you can with the safe harbors with repairs versus improvements? Or are you overcapitalizing everything and you’re spreading out that depreciation over many years when you don’t need to? So there would be certain things there, but what you just described there with developers, for my clientele today, that is not a big portion of it, but could be as my firm grows for sure.

Dylan Silver (20:06)
We talked about Texas and I know that you’re in Minnesota, so two totally different areas of the country, but we’re seeing more folks now investing across state lines and looking for deals, you know, in markets where they might not have boots on the ground. When you have folks who are expressing that type of interest in investing in a market where, you know, it’s not their backyard, is there anything specific from a tax strategy perspective that comes into play in those situations?

Ryan Carriere (20:36)
I first point people to specific companies that—and again, short-term rentals being my primary strategy I help my clients with—I point them to specific companies. I don’t know if I should say them here, but I point them to those companies and I say, “Hey, these people are essentially going to help you underwrite and make sure that your deal is sound first and foremost. Period.” Forget taxes, like I said to start, that is a part of the variable in the equation, we don’t let the tail wag the dog. But if we start to think through, okay, the primary thing we’re talking about is federal, right? Federal taxes, the highest is thirty-seven percent. The closest state is like thirteen point whatever, right? That’s like a third. So while we don’t really care so much about state, it has an impact and it has weight depending on how much income we’re talking about, how much the taxes are. So it’s a piece. But the main thing we’re always trying to solve for first is federal. Once we’ve gotten federal out of the way, then we can look at state, and if you’re going state, it might just be more so a matter of, yes, first and foremost, where do you live? Okay, because you could go say, “Hey, I’m in California”—and we’re just using that—”I’m in California, but I’m gonna go buy in a no-income-tax state like Florida.” Okay, well, depending on what you do, yes, you might not have then a state tax burden in Florida, but guess what? You still are a resident of California. So sometimes—very rarely does this actually come out to play in application and logistically—you actually might just want to move states, right? Because if I said, “Hey, you move from California to what, Nevada?” Okay, very different income tax state level, right? So it might be that kind of maneuver first. If you’re like, “I’m looking at total picture, holy cow, I pay 50 grand in state taxes every year, 100 grand to California alone.” Okay, what is it worth to you to move? And then know moving forward, you never have a California state burden again for however many years that might be, right? So that first and foremost is the bigger picture. Then we could think about, “Okay, where do you want to invest from there?” So it’s more so the residency issue first.

Dylan Silver (22:31)
We are coming up on time here, Ryan. Any new projects or activities that you’re working on? And then also anything you’d like to mention directly to our audience?

Ryan Carriere (22:39)
Yeah. If you like this and you are more interested in further conversation and what I might talk about or write about, LinkedIn is where I write once a day for weekdays, if not twice a day. So if you’re interested in some of these things, I talk about my clients’ experiences, obviously anonymized for them, but also just general tax education about real estate tax strategies. You can go find me there, Ryan Carriere, CPA. You’ll see my picture. But also, yeah, my website’s fine. You can kinda learn more about me in general. Other projects I’m working on, I have two things that come to mind. I’ll make it quick. You’ve probably seen, obviously, with the AI craze that’s going on, I have an AI employee, which has been really fun to train him up—I don’t know if you can really call him a her or whatever it is—train it up. But that’s been very fun to kind of help it help me speed up and be more efficient. As well as just this morning, I am starting to draft a book that I’m working on. So I’m excited about both of those things.

Dylan Silver (23:38)
That is awesome. Ryan, thank you so much for your time today. Thanks for joining us.

Ryan Carriere (23:43)
Yep. Thanks, Dylan. Great to be here.