Which properties are the best for maximum depreciation using cost segregation?

Question

Hi everyone,

I am an aspiring real estate investor and I got interested in real estate primarily due to the tax benefits. I want to reduce my w-2 income by running a short term rental and claiming bonus depreciation.

I am trying to figure out which property can provide the maximum depreciation tax benefits? Meaning if I invest $x into some property, I want the maximum percentage of $x as income that can be claimed as bonus depreciation. I am aware that land cannot be depreciated.

Will it be Houses, Townhomes, Multi-family, Condos, Apartments or Manufactured homes?

Michael Plaks · Answer

Wrong reason to go into investing for tax benefits. Invest for cash flow and appreciation, and tax benefits are a distant 3rd in the list of reasons.

Similarly, don't choose the type of properties you buy based on taxes. Choose based on their potential for cash flow and appreciation.

And you may not fully understand how STR taxation works. The potential tax benefit is for the first year of ownership only. After that, it's likely to increase your taxes since it's supposed to cash flow. Which is good.

Read this: https://www.biggerpockets.com/forums/51/topics/1075919-five-common-myths-of-cost-segregation-and-100-bonus-depreciation

Julio Gonzalez · Answer

@Sahil Singla While real estate investing does offer incredible tax benefits, I'll start with the saying "don't let the tax tail wag the dog." Tax laws are constantly changing and evolving, so choosing a specific property type now due to a specific tax law could suddenly no longer work for you if that law changes. I'd focus on what type of property interests you. What works best in your market? What's your long-term strategy? It's a numbers game and you want to pick a strategy that you feel passionate about. I would definitely recommend finding a great CPA that specializes in real estate taxation as well as an investor friendly real estate agent. Hope that helps!

Basit Siddiqi · Answer

The issue that I see often is those who have no real estate experience getting into STR for the tax benefits.Most people taking advantage of this strategy are likely making at least $78 an hour at their job($150,000 / 40 hours / 48 weeks).Most people who are doing real estate for the first time are likely inefficient with the process as they compete with others who do this full time.They are likely putting in hours doing tasks that may be $15 an hour or even negative if they are inefficient.Plus, if you are working a full-time job, the added stress of managing a rental.Many people would be better off spending that 100+ hours doing consulting in the field that they work in to generate more money which can go to the purchase of a new investment property.Best of luck

Greg Scott · Answer

I doubt it matters.  If you have a W2, your ability to reduce income with depreciation offsets will be limited.  Talk to a CPA who understands your specific situation.

Which properties are the best for maximum depreciation using cost segregation?

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