2025 Tax Bill Updates + Answering Your Pressing Questions

The latest episode of the Tax Smart REI Podcast dives deep into where things stand with the 2025 tax bill, what investors should expect, and why tax planning still matters, even if you don’t qualify for real estate professional status or the short-term rental loophole.

Legislative Timeline: What’s Coming and When

House Speaker Mike Johnson has indicated that the House aims to vote on the tax bill by Memorial Day, with a Senate vote and presidential approval expected around July 4th. While timing is never guaranteed in D.C., that’s the current target. The big sticking points? Internal battles over how to pay for the bill, particularly proposed cuts to Medicaid and green energy programs.

What’s Likely in the Tax Bill

• 100% Bonus Depreciation: A fan favorite among real estate investors, this is still expected to make it into the final version of the bill and could even be retroactive to January 1st.
• SALT Cap Relief: The current $10,000 cap on state and local tax deductions may be doubled to $20,000 for married couples filing jointly, but a full repeal is unlikely due to budget constraints.

Community Q&A Highlights

Q: What happens when you sell a short-term rental you’ve taken bonus depreciation on?
A: You’ll face depreciation recapture, unless you use a 1031 exchange to defer it.

Q: What’s an acceptable format for a REPS (Real Estate Professional Status) time log?
A: A credible log should include the property, date, time spent, and specific activity (e.g., “3 hours replacing bathroom vanity at 123 Main Street on May 10”).

Q: Can you use the STR loophole on a boutique hotel?
A: Yes—provided it meets the average stay threshold (under 7 days), and you materially participate more than on-site staff (or hit the 500-hour test outright).

Q: Can you depreciate furniture that comes with a property?
A: Yes, using third-party valuation methods like Facebook Marketplace or Salvation Army donation guides. Just make sure you document everything.

Q: Can LP (Limited Partner) losses be grouped with rental losses under REPS?
A: Potentially—but only if you materially participate in the rental group (generally hitting the 500-hour test) and properly group activities under IRS rules.

What If You Don’t Qualify for REPS or STR Loopholes?

There’s still plenty of value in proactive tax planning. Here are overlooked strategies and mistakes to watch for:

Tax Planning Wins

• Partial Asset Dispositions: Write off the remaining value of structural components (e.g., old roof) when replaced.
• Safe harbor elections and repair deductions.
• Home office, vehicle use, paying your kids (done properly).
• Exit planning to avoid capital gains surprises.

Common Mistakes

• Holding rentals in an S Corp or C Corp.
• Overlooking retirement account contribution strategies.
• Mishandling self-employment income or reasonable compensation in S Corps.
• Missing out on oil & gas investment deductions or tax loss harvesting.

Should You Create a Property Management Company?

Not always. The tax benefits only apply if you’re trying to:

• Create earned income for retirement contributions (e.g., Solo 401(k))
• Pay into Social Security intentionally

Otherwise, it often adds complexity and self-employment tax (especially the 2.9% Medicare tax) with little upside.

The Bottom Line

Yes, there’s a flood of free content out there, but what works for one investor may not work for another. That’s why working with a tax strategist matters. It’s not just about finding the “cool” strategies.

It’s about avoiding critical mistakes, minimizing audit risks, and building a customized game plan based on your investment goals.

If you’re ready to take tax strategy seriously in 2025, request a free 30-minute discovery call.

Thomas Castelli, CPA (00:01)
Welcome to this week’s episode. We’re covering anticipated changes in the 2025 tax bill and taking questions from Tax Smart Insiders.

2025 Tax Bill Timing & SALT Cap Discussion

Thomas Castelli, CPA (00:30)
The House is targeting a Memorial Day vote. Senate is expected to review by July 4th. Issues remain around funding the bill, especially related to cuts in Medicaid and green energy.

Thomas Castelli, CPA (01:25)
100% bonus depreciation is still expected to return. The SALT cap (‘10k cap on state/local taxes’) may be doubled to $20k for married filing jointly taxpayers. Still just speculation.

Ryan Carriere, CPA (02:45)
Ryan agrees that the most relevant provision for listeners is the potential return of bonus depreciation. It may even be retroactive to January 1st, though nothing is finalized.

Thomas Castelli, CPA (03:27)
Thomas confirms they will keep everyone updated via this podcast and the REI Daily newsletter.

Q&A Segment Begins

Thomas Castelli, CPA (04:30)
First question: What happens when you take bonus depreciation on a short-term rental and later sell the property?

Ryan Carriere, CPA (04:53)
Depreciation recapture applies when you sell, but it can be deferred using a 1031 exchange. There is no penalty, just standard tax treatment.

REP Log Requirements

Ryan Carriere, CPA (05:47)
What is an adequate level of detail for a real estate professional time log?

Thomas Castelli, CPA (06:12)
There’s no specific format, but the log must be credible. Track the property name, time spent, date, and activities performed. Use a spreadsheet or tool like REPS Tracker. Avoid inflated time estimates.

STR Loophole for Boutique Hotels

Thomas Castelli, CPA (09:25)
Can a boutique hotel qualify for the short-term rental loophole?

Ryan Carriere, CPA (09:53)
Yes. If the average guest stay is under 7 days, it qualifies. On-site staff only matters for material participation. Grouping other STRs or hitting the 500-hour test can make it non-passive.

Thomas Castelli, CPA (11:26)
The same rules apply to boutique hotels as to short-term rentals. These rules were designed with those kinds of properties in mind.

Valuing Furnished STRs for Bonus Depreciation

Thomas Castelli, CPA (11:54)
How do you value included furniture for depreciation purposes?

Ryan Carriere, CPA (12:11)
Check Facebook Marketplace, eBay, or Salvation Army valuation guides for comps. Document how you arrived at the value.

Thomas Castelli, CPA (13:24)
Used furniture qualifies as 5-year property and can be depreciated. Support the valuation with third-party data, screenshots, or donation guides. Don’t estimate without backing.

REP Status + LP Syndication Losses

Thomas Castelli, CPA (15:04)
Can you combine real estate professional status with passive K-1 losses from syndications?

Ryan Carriere, CPA (15:50)
Yes, but only if you meet the 500-hour material participation test. Passive losses stay passive unless you clear that hurdle.

Is Tax Planning Still Worth It Without REPS or STR?

Ryan Carriere, CPA (18:28)
Even if you don’t qualify for REP or STR loophole, tax planning still has value.

Thomas Castelli, CPA (18:47)
You might benefit from other strategies like partial asset dispositions, safe harbor elections, cost segregation even without bonus depreciation, home office deductions, vehicle strategies, and retirement planning.

Ryan Carriere, CPA (22:19)
Also consider fixing missteps like putting real estate in S-Corps, improper retirement plan contributions, or ignoring oil and gas investments. Many clients overlook valuable deductions or make structural errors.

Thomas Castelli, CPA (23:47)
Strategic planning avoids mistakes and captures missed opportunities. Proactive advice prevents audits and helps investors exit or reposition assets more efficiently.

Should You Create a Management Company for Your Rentals?

Ryan Carriere, CPA (27:54)
Should investors create a property management company for their own rentals?

Thomas Castelli, CPA (28:27)
Typically not for tax reasons. It makes sense only if you need self-employment income to contribute to a Solo 401(k) or Social Security. Otherwise, it adds complexity and self-employment tax.

Ryan Carriere, CPA (31:24)
Watch out for incomplete advice from influencers. You’ll still owe 2.9% Medicare tax even if Social Security is maxed. Be sure the strategy aligns with your full financial picture.

Final Thoughts

Thomas Castelli, CPA (33:03)
Tax planning helps determine whether a strategy fits your specific goals and situation. Free content is useful, but context is everything. Avoid generalizations that could cost you.

Stay tuned for future episodes on IRS audits, mistakes we’ve seen from other CPAs, and a deep dive into partial asset dispositions.

If you’d like our help preparing for the upcoming tax bill or building a proactive plan, use the link in the show notes to schedule a free 30-minute discovery call.

Thanks for tuning in!

Want personalized tax strategy related to your portfolio? Schedule a consultation with our team.

Disclaimer: This podcast summary and transcript were partly generated and may contain some errors or miss key points from the audio recording.