Bonus Depreciation Question HELP NEEDED PLEASE From You Amazing Tax Pros!!!!

Tax, SDIRAs & Cost Segregation
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Bonus Depreciation Question HELP NEEDED PLEASE From You Amazing Tax Pros!!!!

Jonathan St.LegerPro Member
Investor · Kitty Hawk OBX NC · Member since 2019 · 44 posts · 39 votes

Hello BP Nation, 

I sure could use some help with a problem that I'm currently facing. So....... with my previous CPA (who has since unexpectedly retired) we did a cost segregation study on an asset that was placed into service in 2021 which broke down the bonus depreciable items into 3 buckets, a 15 year bucket, a 7 year bucket, a 5 year bucket and the rest would be on a 39 year straight line depreciation schedule as it is a short term rental. For the tax year of 2021 I was advised to only take the full 15 year bucket as that brought my income down very low and that I could take the either one or both of the 7 year & 5 year buckets in the following year 2022 as 100% bonus depreciation. I have since needed to hire a new CPA and he is saying that I cannot use the remaining 5 & 7 year buckets as 100% bonus depreciation and that they can only be used as accelerated depreciation which helps a little but I tax planned and strategized based on being able to use100% bonus. As a result I'm left with a hefty tax bill as well as penalties and interest. For those in the know, can you please advise me if I should in fact be able to use them as 100% bonus in the second year?  Thank you so much. 

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
2y
Quote from @Jonathan St.Leger:

For educational purposes and future planning, is there a downside to having a large net operating loss carrying over into future years? 

The downside is wasting your low tax bracket in the year when NOL is created (2021). Your plan was OK, but it does not work due to timing.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    2y

    @Jonathan St.Leger

    Your timing is the problem. Sounds like you are just now filing your 2022 taxes. If so, then indeed you cannot do it on your 2022 tax return. You can do it on your 2023 tax return though, with a complex procedure involving Form 3115. But it's too late to file 3115 for 2022.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    2y

    Did you do the cost segregation on your 2021 tax return?

    If that is true, your accountant likely suggested, that you take bonus depreciation on the 15 year assets(which you can do).
    I think he was suggesting to make the election to opt out of bonus depreciation for the 5 and 7 year assets. However, if you do this, you are stuck with that convention and you can't convert it to 100% bonus depreciation for 2022.

    He likely suggested not taking the bonus depreciation on the 5 and 7 year assets in 2021 because your income was already down to $0.
    If you had done the bonus depreciation on all the assets, you likely would have had a bunch of NOL Carryforward to 2022 to offset your 2022 income.

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  • Jonathan St.LegerPro Member
    OP
    Investor · Kitty Hawk OBX NC · Member since 2019 · 44 posts · 39 votes
    2y

    @Michael Plaks     Thank you for responding! Yes, unfortunately I'm just now being able to file 2022 returns. My previous accountant had all of my paperwork since July of 2023, she had promised that it was not a problem to be filed by Oct.15th but she had some health issues and would not respond to my many calls, emails and texts. She finally got back to me in December only to notify me that she had retired and that I could come collect my paperwork. I then had to source another CPA, that's how I ended up in this situation. I will ask new CPA about the 3115 for 2023. Thansk, have a great day!

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  • Jonathan St.LegerPro Member
    OP
    Investor · Kitty Hawk OBX NC · Member since 2019 · 44 posts · 39 votes
    2y

    @Basit Siddiqi     

    Thanks for responding! Yes, I did do the cost segregation on my 2021 tax returns.  For educational purposes and future planning, is there a downside to having a large net operating loss carrying over into future years? We had chosen to take only the 15 year bucket in 2021 as bonus because it brought my income down to the low tax brackets. I was hoping and under the understanding that I could use the remaining available 5 & 7 year bonus buckets in 2022 as income was very strong in 2022 and as it sits currently in the 35% bracket with heavy Penalties and interest. As the previous CPA and I had planned by being able to use the additional bonus depreciation it would have again left me in a very low tax bracket. I just wanted see if there was any other options that I wasn't aware of on how to possibly capture this as it will change my financial landscape. It is what it is however I like to continually learn and plan better going forward. 

    Thanks, have a great day! 

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    2y
    Quote from @Jonathan St.Leger:

    For educational purposes and future planning, is there a downside to having a large net operating loss carrying over into future years? 

    The downside is wasting your low tax bracket in the year when NOL is created (2021). Your plan was OK, but it does not work due to timing.

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  • Jonathan St.LegerPro Member
    OP
    Investor · Kitty Hawk OBX NC · Member since 2019 · 44 posts · 39 votes
    2y

    Can I amend 2021 tax returns and include everything eligible for bonus depreciation resulting in a Net Operating Loss which then would roll over to the following year? Thanks for your time, have a great day! 

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