The Short-Term Rental Tax Loophole for W-2 Earners | Cost Segregation & Bonus Depreciation

Tousif Rahman (00:00)

The short-term rental loophole, especially if you have a W-2 job. A lot of beginning investors, they are not full-time investors, which is perfectly fine and relatable. They are having a W-2 job, but they as soon as you hit the $150,000, your passive loss limitations kick in. So you are not able to take all those passive losses against your W-2. So instead of keeping that rental, a regular rental, use it as a short-term rental for the first year. Make sure you qualify for all the active participation rules. Take the hundred percent bonus, get it back to long-term. This one strategy can save you millions.

Scott Bursey (02:16)

Welcome back to the *Real Estate Pros* podcast powered by Investor Fuel. I’m your host, Scott Bursey And today, pros, we have a total pro in the house, Tousif Rahman, the force behind MTR Groups. Tousif is an entrepreneur and investor who isn’t just playing the game in the U.S., but operating internationally as well. He is a master of the complex world of asset protection and tax strategy.

Pros, if you want to understand how to leverage cost segregation and passive depreciation to stop hemorrhaging cash and start keeping more of what you earn, you’re going to get a massive value from this episode. Tousif welcome to the show.

Tousif Rahman (03:01)

Thanks for having me, Scott.

Scott Bursey (03:03)

It is awesome having you here, my friend. And to help our pros get up to speed, please give us the ninety-second highlight reel of how your career ignited and where you’re pouring your fuel now.

Tousif Rahman (03:18)

Sure. Used to be a mechanical engineer. Someone messed up my taxes. So I started learning about taxes, became a tax pro, realized I need to do some of these strategies myself, started investing in real estate myself. Then the energy that I’m focusing now on is giving options and market opportunities for investors, both in the U.S. and different markets internationally, so that they’re not just stuck with their local market, but get a bigger picture both nationally, internationally. Make more money, keep more money and give more money.

Scott Bursey (03:59)

That is an incredible journey and a great purpose. And you know what really caught my attention about you was the way you’ve been able to turn complex tax codes into tangible wealth preservation engines for investors. And on that note, curious to know, was there a specific moment that made you realize the tax system could actually be leveraged for the investors’ benefit rather than just a load on their shoulders?

Tousif Rahman (04:27)

Absolutely. Interestingly enough, when my first tax bill came in, it was about $900 with interest. And unfortunately, I was so broke that I was about to go bankrupt at that time. But I was reading that Amazon CEO at that time, even though they were a billion multibillion dollar company, they were not paying a single dollar in taxes.

Then I realized there has to be something more than just the regular paying taxes. Since then, I have been starting to educate myself, helping other people strategize. Realize real estate is one of the, of course, it’s not the only, but one of the most powerful strategies available in the U.S. tax code. That’s when I realized, hey, I need to do it myself and also teach others. That’s how I became a tax pro.

Scott Bursey (06:10)

Tousif, the pros are interested to hear what do you consider the biggest strength in your current asset protection strategy for new investors?

Tousif Rahman (06:22)

The biggest thing is I have started from, as I mentioned, absolute zero. And I have been in the trenches myself. I have been able to grow both my portfolio and my client’s portfolio. As a matter of fact, I am filing someone’s taxes. They’re now at I think 43 properties. And we have been consistently helping them grow their portfolio as well. So I have been able to see the ups, the downs, the good, the bad, the ugly.

And also not only just in the U.S., but what may come internationally as well. And at the moment I am dealing with countries like Turkey and Australia. So far I have experience with. Of course, there are more to come as well.

Scott Bursey (07:05)

Fascinating. And Tousif, what is the biggest weakness or common oversight you see investors making with their tax filings in the current environment?

Tousif Rahman (07:17)

Especially for investors, one of the things that I thought is twofold. One, they don’t get the proper education first and they overdo it. And the people who were supposed to do these things, they underdo it. Those are the two extreme pitfalls that I’ve seen. So, say for example, two extreme examples. One of them, there was a few folks that had active income, a lot of it, and they were focusing heavily on traditional long-term rental real estate. And even though they had a lot of passive losses, they couldn’t take it because none of them qualified for REP status. On the other hand, there was someone that actually qualified for REP status and they’re not buying enough properties. and they were still making decent money on their portfolio and their other active real estate-related business. But unfortunately, the full force of hundred percent bonus being back, they couldn’t leverage it. So I would say speak with a tax strategist, proper individual who understands the game, and let’s hammer those taxes down.

Scott Bursey (08:28)

Wondering what is one tax deduction or strategy that you see as a massive opportunity that is being completely overlooked by by many right now?

Tousif Rahman (08:41)

The short-term rental loophole, especially if you have a W-2 job. A lot of beginning investors, they are not full-time investors, which is perfectly fine and relatable. They are having a W-2 job, but they as soon as you hit the $150,000, your passive loss limitations kick in. So you are not able to take all those passive losses against your W-2. So instead of keeping that rental, a regular rental, use it as a short-term rental for the first year. Make sure you qualify for all the active participation rules. Take the hundred percent bonus, get it back to long-term. This one strategy can save you millions.

Scott Bursey (09:24)

That’s some excellent strategy right there. That’s some million dollar advice, literally. And Tousif, if you could give us the play by play and where would you like to see your business, MTR Groups, in let’s say the next twelve to twenty-four months?

Tousif Rahman (09:42)

Our goal is to be one of the most accessible tax professionals in the entire country. And the second part of it is what we are trying to help people invest internationally. So expand both within the nation. We have multiple business networks, multiple networks within the U.S. investor communities, and also leverage our connections and help people to expand their jurisdiction, their currency.

Their investment strategy to be diversified, which is I I say that hey, these are one of some of the basic things if you want to preserve long-term wealth in different jurisdictions and within different changing regulations and changing times.

Scott Bursey (11:04)

Tousif, we’d like to understand what do you see as the biggest threat to real estate investors’ wealth preservation in the coming year?

Tousif Rahman (11:14)

Two things I would say is uncertainty, which makes a little bit risky with investing in which strategy we’re coming at. Especially the uncertainty is also pushing significant downfall on the sale and the movement of the houses that we are seeing. That unfortunately the market has been pretty slow lately. That’s one of the challenges that I would say, and the second one being lack of knowledge.

Because real estate is a huge beast and you can make money in any of the legs. If you can eat one of the legs, you’re gonna be a millionaire. But the challenge is you need to be mastering what you are doing. A lot of the people listen to so many people at the same time. Of course, those big guys can be diversified into different strategies. But if you’re starting out, focus on one thing.

Choose your market wise to educate yourself and go on it.

Scott Bursey (12:16)

And Tousif, if somebody’s listening—one of our pros or a group of pros—and they’re thinking to themselves, hey, this is somebody that I really like, what would you like them to know about your business first and foremost?

Tousif Rahman (12:32)

First and foremost, I am one of the few individual tax it’s real estate-focused tax firm that actually are way more accessible than most of the people that you’re gonna find. I personally am giving out my even personal cell phones. I am accessible. That’s one of the unique things I wanted to change in this industry because when I was first starting out, I couldn’t get my tax pro for almost a month.

And the deal didn’t wait for a month. So if you want to switch, I guess, get help, and if you wanted to communicate directly with me, you are more than welcome to do so. And I’m happy to help you out with all of your tax and accounting journey.

Scott Bursey (13:22)

Tell us how do you evaluate whether a deal or an asset is actually protection ready before you pour fuel into it?

Tousif Rahman (13:34)

That’s a very broad question. Of course, it does vary between what I’m trying to achieve, my long-term, short-term goals, and also the market. So say for example, the investment strategies in the U.S. market. One year ago, I was pushing for one of few of my unique unique tax planning clients that let’s focus on investing in New Jersey because we just finished World Cup.

Especially close to the stadiums because that strategy is gonna boom for up until now. And you could have still sold it, made money, get the bonus, and do a 1031 exchange and take it out. Now in terms of asset protection ready, it becomes also what structure you are having and what your long-term goal is. So say for example, these short-term assets are much more to be rolled over to the bigger ones. And in terms of change in industry, two of the industries that I would focus on is one co-living. Second is the apartment complexes.

Scott Bursey (14:45)

Tell us if if you could walk us through what is your professional network look like right now?

Tousif Rahman (15:32)

I am part of multiple investment and business advisory groups, starting with SubTo, which is one of the bigger ones in the space with creative financing. I’m also part of Clever Investor and also part of AMCOB and also MOVE Chamber. Those two—MOVE is more like a local one. And I’m actively attending local events and especially with someone starting out.

Another thing I would highly encourage, and which I’m also doing now, is reach out to your local Small Business Development Centers, which is typically government funded and it’s for free. And you have access to way more qualified, especially for the beginner ones, many more qualified individuals. I do also attend using online platforms like LinkedIn and Meetup. And that helps me to attend multiple networking groups and events to just to give you a little contrast, I made a six-figure business from zero to six figures without a single dime investing into marketing with just by networking.

Scott Bursey (16:45)

That is powerful. Your network really is your net worth, and it’s clear you’ve built a solid one. Tousif, digging deeper, if you had to advise a pro listener on one move to make this quarter to maximize their tax efficiency, what would it be?

Tousif Rahman (17:06)

First of all, I would strategically look into where you are. If you have a W-2 and if you are like or you or your spouse have W-2, and if one of you want to go full time, go all in and purchase properties and have him or her to be a real estate professional. Whichever strategy you want to take. If you are like, hey, we will still want to keep our W-2s because remember, at the end of the day, W-2 does make you more bankable.

More lendable. So if you wanna both of you guys want to keep your W-2 jobs, go for either hotels, co-living or assisted living or short-term rental loophole—short-term rentals, because these few individual places you actually can operate as a business as opposed to pure real estate, which can be in turn taken against your W-2 income. Now of course each of them does need to meet your material participation test. It that cannot be just, hey, I bought this property and I’m just gonna have this co-living out. No. It has to be actively managed to maintain or qualify for the higher standards. So speak with your tax pro, get a tax planning session and focus on how the best strategies you’re gonna have.

Scott Bursey (18:29)

Excellent advice. And so for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you, what is the best way for them to to reach out to you?

Tousif Rahman (18:42)

I use Facebook most and you can always shoot me a text. You have my number if you want to pass it out, or if you want me to give it out, I’m happy to give it out. I am available in WhatsApp, Facebook. You can always follow me on my YouTube channel. I do make videos on different questions. A lot of people ask me questions, so instead of individually answering them, I make a video and help them out.

Scott Bursey (19:12)

Thank you for joining us today, Tousif. This has been an absolute master class.

Tousif Rahman (19:18)

I appreciate. Thanks for having me. I’m happy to be here.

Scott Bursey (19:22)

And to our listeners, we appreciate you. If you received value from today’s episode, please subscribe. We’ll be filling your tanks with a lineup of elite guests, just like Tousif who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode, everyone.