Bonus Depreciation/Cost segregation for 2022 and 2023

[Maria Johnson]

I am a real estate professional and my spouse has a regular job that makes most of the money (w-2), he makes about 300K and sometimes gets bonuses.

I plan to buy 2 properties in 2022 as short term rentals and 2 condos in 2023 as short term rentals and am planning to use the bonus depreciation on these purchases to save money from paying less taxes that can then help us save to buy more properties for me to manage.

My question is this, through a cost segregation study , can I bonus depreciate the 2 properties at 100% (will be about 75k each) for 2022 to go against our total taxes, including his about 120K that he will owe on taxes through the bonus depreciation), and then carry that over to the other years including the 80% of 2023 bonus depreciation of the 2 condos (which will be about 50K x2)?  Here is the example:

1. 2022

Buy 1 house, 100% bonus depreciation = 75K
Buy 2nd house, 100% bonus depreciation= 75K

Total 150K bonus depreciation.  If we owe about 110 in taxes with w2 and our rentals, does the 150K come out in schedule E and what we owe in taxes comes out of there?  Guess if he can tell work to claim more deductions we would have more paycheck to go against this depreciation?

2.  2023

Buy 1 condo, 80% bonus depreciation= 50K

Buy 2 condo, 80% bonus depreciation= 50K

Same idea?  Just trying to see how it works so that what we save on taxes, we can use more money to actually buy these 4 properties before he retires in 3 years, which is why we would want to take the tax advantage now before our income becomes way less when he no longer works a high income job.

[Greg Scott]

If you are a real estate professional passive losses can offset active income.  That means that any losses you get from bonus depreciation should be able to offset even your husband's W2 income.  It should result in a substantial tax savings, and it would appear in your case, a significant tax refund.

I'd recommend you have a CPA help you with the details so that it is done correctly.  The minimal cost will give you peace of mind and often they can identify tax savings you wouldn't.

It is worth noting that a full-blown cost segregation study can be expensive.  Depending on your comfort level with risk, the IRS provides several ways to do a cost segregation study.  Some are cheaper but carry more risk if you were audited.   Again, a good CPA that understands real estate can help. Here are the guidelines: https://www.irs.gov/businesses...

[Ashish Acharya]

My question is this, through a cost segregation study, can I bonus depreciate the 2 properties at 100% (will be about 75k each) for 2022 to go against our total taxes, including his about 120K that he will owe on taxes through the bonus depreciation), and then carry that over to the other years including the 80% of 2023 bonus depreciation of the 2 condos (which will be about 50K x2)? Here is the example:

I hope that 75k is not the total cost of the building. The 75k is a tax deduction (not a tax credit), it doesn't offset dollar for dollar of your taxes. 

1. 2022

Buy 1 house, 100% bonus depreciation = 75K
Buy 2nd house, 100% bonus depreciation= 75K

Total 150K bonus depreciation. If we owe about 110 in taxes with w2 and our rentals, does the 150K come (150k is not a tax saving. It's just tax deduction. Please multiply your effective tax rate to get the tax savings. let's say 150X30%= 45k in tax savings ) out in schedule E and what we owe in taxes comes out of there? Guess if he can tell work to claim more deductions we would have more paycheck to go against this depreciation?

[Julio Gonzalez]

I recommend always consulting with a CPA to get specifics on how this will impact your tax situation. That being said, if you have specific questions about cost segregation studies, feel free to let me know. 

[Bonnie Griffin Kaake]

@Maria Johnson The information you listed above is too vague to give you a good answer. What I do know is that you definitely want an engineering-based cost segregation study. It will give you the best return on your investment and let you sleep at night. The IRS has as long as you own the property plus 3 years to audit your depreciation schedule. If a CPA picks a few items that they can depreciate for you, you will very likely be leaving money on the table. It takes an engineer and an expert in construction to do the best job of maximizing your ROI. Estimates are free from cost seg firms and then, you and your CPA/tax professional can decide what works best for your specific tax situation.

[Olivia Leija]

Hello Maria,

Were you successfull on your strategy with the purchases of rental property and utilizing 100 % bonus depreciation for 2022?  I had a similar tax strategy with short term rental as I am not a real estate professional.  I would need a CPA knowledgeable on bonus depreciation to amend my 2022 tax return  

[Bonnie Griffin Kaake]

Quote from @Olivia Leija:

Hello Maria,

Were you successfull on your strategy with the purchases of rental property and utilizing 100 % bonus depreciation for 2022?  I had a similar tax strategy with short term rental as I am not a real estate professional.  I would need a CPA knowledgeable on bonus depreciation to amend my 2022 tax return 

Hi Olivia, You don't need to amend your return. A quality estimate for a cost segregation study will give you and your CPA/tax professional the information you need. The actual study will bring your depreciation schedule up-to-date. Let me know if I can help.