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Despite 2018 reductions in income-splitting tax strategies used in family trusts, TOSI tax and income splitting rules have made room for the prescribed rate loan strategy variation to thrive.
How it works:
Investment income held within the family can be split with low-income beneficiaries (i.e. low-income spouse or young children). The higher-income counterpart can loan funds to the family trust to then invest in publicly held securities. Continuously re-investing the gains from these securities (through the family trust) can produce ongoing growth. Additionally, since low-income earners have a significantly lower marginal tax rate than higher earners, beneficiaries of the trust don’t need to be paid out right away! This translates to big tax savings over time.
CRA sets the prescribed loan rate every quarter making it important to lock in this strategy before the rate increases above its current 4%.
Important Caveat:
A crucial note when applying the prescribed loan rate strategy is that the high-income earner must be paid the interest of the loan on January 30th every year. All benefits of this tax planning strategy will be lost if you miss the deadline!
Stay on top of all important deadlines and start capitalizing on this strategy today by connecting with our tax experts.
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Learn how you can save more as an American rental property owner below.
The Short-Term Rental (STR) Tax Loophole is a powerful legal and IRS-recognized opportunity that savvy investors are using to significantly reduce their tax burden. The best part? This strategy does not require Real Estate Professional status.
Under IRS Regulation 1.469-1T(e)(3)(ii)(A), short-term rental income (from stays averaging 7 days or fewer, or under 30 days offering hotel-like services) is excluded from “rental activity” status, allowing qualified investors to claim non-passive losses.
✔️ Meet material participation tests (e.g., 100+ hours and more time than anyone else)
✔️ Offset non-passive income with STR losses
✔️ Leverage depreciation with cost segregation
✔️ Avoid common pitfalls like misuse of the 7-day rule or failing to track hours
STRs allows investors to capitalize on non-passive losses, unlocking massive deductions, especially when combined with smart depreciation strategies. A smart CPA will guide you through attaining cost segregation studies to reclassify 20–30% of your property into 5 and 15-year assets.
For example, $1M property in 2022 could yield around $250K in depreciation deductions.
This tool is significant because these losses are non-passive which can offset other U.S. source income.
Heads-up: 100% bonus depreciation is phasing out. In 2025 it dropped to 40% and is on track to be gone by 2027. Acting now can lock in savings while they last.
Yes, STR tax strategies can apply to properties foreign to the U.S., but bonus depreciation isn’t allowed, and you'll need to use the slower ADS method for depreciation.
Unlikely. Though the law was originally written for hotels, there's no current legislation threatening its removal. Still, investors should act while bonus depreciation remains available.
Ready to implement this strategy? Schedule a free consultation with our tax specialists and start saving thousands annually.
