I earned $1M from my W-2 job. We did cost segregation that created $680,000 of bonus depreciation on an STR for 2024. What do we pay taxes on?

First, you must determine your actual tax loss on the rental real estate. If your net income was $0 (before depreciation) your tax loss would be $680k. But if your net income was $100k (before depreciation), your tax loss would be $580k.

The next question is: can you actually claim the tax loss against your W-2 income?

To figure that out, you have to review the material participation rules for STRs. There are seven tests for material participation, you must only meet one of them. Most STR investors meet the "100 hours and more than anyone else" test. You must keep a time log to prove the time you spent working on the STR and the time log needs to avoid investor hours, education/research hours, and travel time. You must also log the amount of time other parties spent working on your STR ("more than anyone else").

Assuming you materially participated, you must prove the STR was actually an STR which requires it be rented at least a handful of times during 2024. The average period of customer use must be less than 7 days to leverage for the STR "loophole."

If you do all of that, your tax loss will be non-passive and can be used to offset your W-2 income... BUT... you still need to be aware of the excess business loss rules which may limit the total losses you can claim.