Friday Weekly Q&A Call - 10/16/26 · 🏠 Lower Taxes w/ Ryan

Friday Weekly Q&A Call - 10/16/26

Key Takeaways:

Short-Term Rental (STR) Deductions & Expenses

Marketing and advertising for the rental (AI tools, Instagram, Facebook ads, photographers) are deductible, as are accounting and legal fees.
Tolls and mileage for travel to the STR are deductible as auto expenses, but the travel hours don't count toward material participation.
Hiring your child as a W-2 employee is still a good write-off after they turn 18, with one change: they become subject to FICA. Use a payroll provider like Gusto to move money from the rental to the child, and keep a job description and log of duties. A child with no other income can earn up to $16,100 in 2026 without filing a return.

Material Participation & Hour Tracking

Log actual time, not estimates. Avoid generic blocks (e.g., 15 minutes per guest message). For guest communication, respond through one app and screenshot weekly Screen Time as a precise record.
Don't count education or training hours (webinars, group calls), however they're labeled.
Don't log "supervising" time. For contractors, count only time you actually spent communicating with them.
Audit flag: 600+ hours on a single property is rare and draws attention. Kevin has seen it only a handful of times across hundreds of clients.
Track as you go, not at year-end. Recommended tools: REPS Tracker, REPS Log, Toggl, Clockify, or a spreadsheet. The best tracker is the one you'll actually use.
Mileage: MileIQ works but is clunky. A simple spreadsheet or form log is a good alternative.

Material Participation Tests (for STRs)

100 hours and more than anyone else is the most popular test, but it requires tracking everyone else's time, including cleaners and possibly contractors.
500-hour test is often easier with 2–3 STRs. You don't need to track others' hours, and it's how people self-manage the first few properties, then hand later ones to property managers.
Grouping election is essential on the tax return when combining STRs for the 500-hour test.
There are seven tests in total, so alternatives exist if one fails.
Real estate professional status (REPS) offers no benefit if you only have STRs. It matters when you also have long-term rentals.

Construction & Builder Hours

Hours start counting once you're under contract.
It's unclear whether a builder's hours count against you. There's no regulation or tax court case on point, and the advisors wouldn't want to be the first test. Cleaners' hours have stronger support for counting against you.
Material participation is a year-by-year test. Construction-heavy year one may not matter if the property goes live in year two, and the 500-hour test across multiple STRs can sidestep the issue.
Auditors' positions (e.g., hours only count after placed in service) should be taken with a grain of salt.

Year-End Tax Planning (2026)

Get a tax projection first, so you know your liability before choosing strategies. Submit YTD P&Ls (business, rentals, flipping) by November 1.
S-corp election: For 2026 it must be filed before year-end (a late election can backdate to Jan 1). It requires reasonable salary and payroll set up before December 31. A spouse's business may be worth electing S-corp status at roughly $60-75K+ profit.
Other levers: solo 401(k) (up to $24,500), HSA if eligible, vehicle/mileage, and cost segregation on rentals.
Paying a spouse from a joint-filing business is largely a wash: you get the write-off but must report the income.
Set aside tax money separately. One attendee's ~$60K surprise bill came from reinvesting funds meant for taxes and not using an S-corp to reduce self-employment tax.

Entity & "Creative" Deductions

Augusta Rule mainly makes sense when an S-corp rents your home. It's less applicable to single-member LLCs, and partnerships are a gray area.
Board meetings / trips must be ordinary and necessary. A $10K Bahamas trip for a small single-rental LLC isn't defensible. Keep meeting minutes (AI recorders work well), and stick to business topics, not personal health matters.

Real Estate License vs. REPS

A license doesn't create real estate professional status and isn't necessary for it. It's useful mainly if you'd save on commissions or want to work as an agent, and it carries annual fees and continuing education. Count all hours across properties and exceed 750 for a safety buffer.

AI & Bookkeeping Tips

Claude can build Apps Scripts to copy Google Calendar events into a Google Sheet.
Use APIs (e.g., YNAB, possibly Quicken) to categorize transactions automatically.
BeanCount.io is an open library people have used with Claude to build bookkeeping tools.
Keep bookkeeping current: a recently closed month (e.g., September) makes projections much easier.

Other Notes

Winery/vineyard: Treated as a business if you operate it. Owning the building may allow cost segregation. Liquor licensing is a separate consideration, and stays of 7 days or less may fit STR rules.
Oceanside, CA condos: Check land value vs. building value, and note not all oceanside condo buildings allow STRs.

General Mindset

Be defensible, not aggressive. Ask whether a deduction is ordinary and necessary for the business, and whether it would hold up in an audit. If a position is a gray area and you'd be the first test case, the risk often isn't worth the savings.
Records are your protection. Accurate, contemporaneous documentation (time logs, mileage, meeting minutes, job descriptions) matters more than any single strategy.
Don't pad. Inflated or loosely categorized hours create more risk than benefit. Build in a safety buffer by legitimately exceeding thresholds, not by stretching definitions.
Plan before the deadline. Know your numbers first, then choose levers. Waiting until filing season leaves far fewer options.
Keep it simple and consistent. The best system is the one you'll use daily. Track as you go, keep your books current, and let tools and AI handle the repetitive work.
Weigh the juice against the squeeze. Entity structures, licenses, and complex strategies only make sense when the savings clearly exceed the cost and complexity.
Lean on the community, but verify. Peer experience is valuable, but auditors and advisors can be wrong too. Rely on the tax code, case law, and your own CPA's guidance.