Retired- Will I qualify as a real estate professional in 2022?

Question

I retired from my current career at the end of 2021 and will be managing 2 of my rental properties 100% while having a company managing a third rental out of state. My wife still works full time. Between the two properties there will be well over 750 hours and because I have no W2 going forward the 50% rule should not be an issue.
I purchased a 2 unit residential unit in August of 2021 and am looking for advice on cost segregation/depreciation and the advantages/disadvantages of taking the depreciation in 2021 or waiting for 2022 and doing the study in the first full year
IF I qualify as a professional in 2022. I believe I can request an IRS change of depreciation notice to do so?

All 3 properties are cash positive so I am looking for the most effective and beneficial way to carry a depreciation loss against my gains and free up cash for future purchases

If I qualify as a professional in 2022 and our combined income is less (under100k) because I retired, would it make sense to wait?

Appreciate your thoughts!

Mike

All 3 properties are cash positive so I am looking for the most effective and beneficial way to carry a depreciation loss against my gains and free up cash for future purchases

If I qualify as a professional in 2022 and our combined income is less (under100k) because I retired, would it make sense to wait?

Appreciate your thoughts!

Mike

David M. · Answer

@Michael Dunbar

I'm not an expert on cost segregation, but is it really cost effective on a 2family unit? You do realize that you will be paying that back at ~25% when you sell as depreciation recapture / unrecapture, right? I'm not really a big fan of the "one time deduction."

Also, not sure what you are asking. Did you do the study already in 2021? Anyway, if you qualify in 2022, I don't see how you can try to change something in 2021. As I understand it, you can do the study in 2022 and apply the accelerated depreciation and use the RE Professional status to transfer the deductions onto your 1040. Furthermore, the study will basically accelerate the depreciation into the various schedules for each item. So, this will only give a boost in the first 5 years or so, assuming your capitals have lots of value, i.e. are brand new. For example, if you have a 10-15 year old roof I thought there isn't a point since there isn't much value left to depreciate, faster...

If you are holding these properties long term, you might want to just let it ride at 27.5... After applying the accelerated depreciation, you won't have much of any depreciation year after year once your run out the "accelerated schedules" (relative to the 27.5) in usually 5-7 years. Now you are "stuck," of course unless you start again on another property maybe with a 1031...

To me, those studies are for the "big boys" like a reit, dst, or something else that is going to turnover the property in 5-7 years.

I don't do these, so just my 2cents. Good luck.

Retired- Will I qualify as a real estate professional in 2022?

1 Reply