Bonus Depreciation, when would you not do it?

[Julia France]

I am new to the concept of bonus depreciation and trying to get a better understanding. In the first year of business (2023) should I use bonus depreciation for improvements, furniture, irrigation, landscaping? Can I expense AND depreciate these? My husband and I do all our own work so the value of these wouldn’t be as much as hiring out. Any good information or insight would be greatly appreciated. My short term rental is currently set up on a 39 year depreciation.

[Lien Vuong]

Yes you can expense and depreciate those in Y1. Why is your STR in a 39 depreciation schedule? Is it a commercial (5+ units) property? Otherwise it should be 27.5 years irrespective if its in an LLC form or not.

Bonus depreciation/Cost Seg studies are typically most beneficial for owners of STRs and Real Estate Professionals, outside of those ownerships you do get some benefits but it is often not worth the value in the Study and take a long time to realize. 

A CPA who's familiar with your books would be able to answer your questions in a more specific way.

[Zachary Jensen]

Hey @Julia France, 

You maybe do NOT want to use bonus depreciation if the losses created are excessive passive losses and you don't have a lot of passive income. Alot of real estate investors invest in syndications for example that create large passive losses, but these cannot be used to offset active income. They carry forward but would be much stronger from a tax planning perspective if they were used to offset active income. 

If you qualify for the short-term rental loophole, then taking the deprecation makes sense( in general). If it's a passive activity, then you might want to wait to do the cost seg which creates the deprecation until you can take advantage of the loophole.

[Michael Plaks]

Quote from @Lien Vuong:

Yes you can expense and depreciate those in Y1. Why is your STR in a 39 depreciation schedule? Is it a commercial (5+ units) property? Otherwise it should be 27.5 years irrespective if its in an LLC form or not.

All STRs are depreciated under 39-yr schedule. It has nothing to do with commercial classification for realtor purposes. 

[Michael Plaks]

Quote from @Julia France:

I am new to the concept of bonus depreciation and trying to get a better understanding.

Some of your questions are answered in this long post: 
https://www.biggerpockets.com/forums/51/topics/1121063-expla...

And then there's an STR-specific issue of what people like to call "STR loophole"
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

Other questions, specifically timing of your deductions, are case by case.

[Bill Hampton]

@Julia France

I recommend a consultation with a real estate tax strategist to learn, develop and implement tax strategies available to real estate investors. 

Good luck on your journey. 

[Julio Gonzalez]

@Julia France Here's an example of bonus depreciation: https://www.biggerpockets.com/forums/51-tax-legal-issues-con...