THE Thread on the Final GOP Tax Bill - Q&A

Tax, SDIRAs & Cost Segregation
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THE Thread on the Final GOP Tax Bill - Q&A

Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes

Happy Holidays! As of today, the House and Senate have sent the GOP Tax Plan to the President to sign into law. 

I've seen numerous threads popping up about the GOP Tax Bill. I wanted to start a thread to consolidate questions and basically provide a user guide (via the Q&A) for years to come. 

I invite all tax pros on BP to contribute to this thread. It will be neat to see discussion on the tax bill itself, but also loopholes and strategies that develop once the massive bill has been digested. 

Link to the bill.

Key highlights from the bill: 

1. Mortgage interest deduction allowed on up to $750k of new acquisition debt starting Jan. 1, 2018. (Does not apply to rentals)

2. Interest paid on home equity loans that are not "acquisition debt" is not deductible. (Debt tracing rules will apply - if you use a HELOC to buy rentals, you can still deduct the interest).

3. State and Local Taxes (SALT) are limited to an aggregate $10,000.

4. A "freebie" deduction will be available beginning in 2018 for "combined qualified business income." Calculating the deduction can be complicated. Per our current understanding, you cannot use the deduction for activities generating passive losses. This includes sole props, meaning you do not need to utilize an entity (LLC/S-Corp) to qualify for the deduction as far as we can tell.

5. C-Corp tax rate reduced to 21%. 

6. AMT still exists but the exclusion is higher.

7. Bonus depreciation is now 100% for assets with a useful life of less than 20 years.

8. 529 plan funds can now be used to pay for public, private, and religious elementary and secondary education.

9. Penalty from Obamacare individual mandate has been eliminated.

10. Rehabilitation tax credit reduced in scope.

11. Domestic Production Activity Credit (DPAD) eliminated. 

12. Standard deduction increased, personal exemptions eliminated. 

What did not change:

1. Section 121 Exclusion - aka Capital Gain Exclusion on primary residence

2. Depreciation schedules. (Except for commercial properties on ADS). 

Ask away!

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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y

I am so glad for BP and people smarter than me!

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  • Fausto CarosellaPro Member
    Real Estate Broker · Boca Raton, FL · Member since 2014 · 98 posts · 23 votes
    8y

    Haven’t seen any mention as to whether or not business expenses can still be deducted such as mileage and meals/entertainment? Was that even mentioned in the bill??

    2Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Brandon Hall:

    I want to take a minute and show an example related to the new pass-through deductions. 

    Sole proprietors, LLCs, and S-Corps that are not service business (unless they are below the wage thresholds...explained later) now qualify for a deduction on "combined qualified business income." The deduction is equal to the sum of: 

      • The lesser of:
        • Combined Qualified Business Income, or
        • 20% of the excess of: the taxable income divided by the sum of any net capital gain.
      • The lesser of:
        • 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer, or
        • taxable income reduced by the net capital gain.
        • --
    • Combined Qualified Business Income Amount (in general) is the lesser of:
      • 20% of the qualified business income with respect to the qualified trade or business, or
      • The greater of:
        • 50% of the W-2 wages with respect to the qualified trade or business, or
        • The sum of 25% of the W-2 wages with respect to the qualified trade or business, plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property. 

    --

    As an example, let's assume we don't have capital gain or qualified cooperative dividends. Let's also assume that we have a $1MM property that produces $100k in net income. The property is held in an LLC and does not pay W-2 wages.

    Because we don't have capital gain or dividend income, all we need to do is determine "combined qualified business income."

    In this example the deduction will be the lesser of: 

    (1) 20% of the net income ($20,000) or
    (2) the greater of:
       (2a) 50% of wages paid ($0); and
       (2b) 25% of wages paid ($0) PLUS 2.5% of the basis of the property ($25,000). 

    Because $20,000 is less than $25,000, you would take a $20,000 deduction on your tax returns. 

    Note that if an individual's taxable income (that means ALL income) is less than $157,500 ($315,000 if MFJ), you do not have to go through this calculation. Instead you just take a 20% deduction on qualified business income. Additionally, all service businesses (realtors, lawyers, property managers, accountants, etc) will be able to take the deduction if the individual's taxable income is below these thresholds. Once taxable income goes above these thresholds, service businesses are phased out of the deduction.

    Last thing - the deduction is calculated on a business-by-business basis. That means that you can have five businesses and each business will need to run through these calculations to determine the deduction. Additionally, you can be a PARTNER in businesses and (we're assuming) the business would need to tell you what your allocable share of the deduction is.

     This is a great explanation, thank you. That said it does suck that I'll only be able to take a 20% deduction from my net rental income (which is zero, they all show up as a loss anyways) instead of the 2.5% of the basis in them.

    1Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Austin M. where did you see that land is not included? Here is the code:

    ‘‘(ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.

    ‘‘(6) QUALIFIED PROPERTY.—For purposes of this section: 

    ‘‘(A) IN GENERAL.—The term ‘qualified property’ means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167—

       ‘‘(i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year,

       ‘‘(ii) which is used at any point during the taxable year in the production of qualified business income, and

       ‘‘(iii) the depreciable period for which has not ended before the close of the taxable year. 

    ‘‘(B) DEPRECIABLE PERIOD.—The term ‘depreciable period’ means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of— 

       ‘‘(i) the date that is 10 years after such date, or 

       ‘‘(ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to sub2 section (g) thereof).

    1Reply
  • Austin M.
    Real Estate Professional · Royal Oak, MI · Member since 2012 · 32 posts · 15 votes
    8y
    It says "unadjusted basis" The definition of this is what is used for deprecation which is without land value. Isn't this correct?

    Originally posted by @Brandon Hall:

    @Austin M. where did you see that land is not included? Here is the code:

    ‘‘(ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.

    ‘‘(6) QUALIFIED PROPERTY.—For purposes of this section: 

    ‘‘(A) IN GENERAL.—The term ‘qualified property’ means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167—

       ‘‘(i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year,

       ‘‘(ii) which is used at any point during the taxable year in the production of qualified business income, and

       ‘‘(iii) the depreciable period for which has not ended before the close of the taxable year. 

    ‘‘(B) DEPRECIABLE PERIOD.—The term ‘depreciable period’ means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of— 

       ‘‘(i) the date that is 10 years after such date, or 

       ‘‘(ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to sub2 section (g) thereof).

    1Reply
  • Chihiro Kurokawa
    Rental Property Investor · Dallas, TX · Member since 2016 · 63 posts · 71 votes
    8y

    Are there any implications for LPs invested in a syndication structured as an LLC? What if an LLC is invested in that LLC?

    0Reply
  • Jeff Sheraton
    Wilmington, DE · Member since 2015 · 121 posts · 36 votes
    8y

    Could someone explain this to me:

    "7. Bonus depreciation is now 100% for assets with a useful life of less than 20 years."

    0Reply
  • Michael Guzik
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @Brandon Hall Hey guys I apologize for my ignorance but I have no idea wtf any of this stuff means. I'm looking to get my first property by house hacking and am wondering how or if this will impact me? Could ya'll dumb it down so I can understand what this will change. Thanks and sorry lol!

    1Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Yonah Weiss:
    Originally posted by @John Woodrich:

    I don't see why this is so clear at all. The new bill mentions 1031 can only be applied to real property (1250), as opposed to personal property (1245). I assumed that is coming to exclude like-kind exchanges of planes, cars, equipment and the like, which was common practice to off-set capital gains. Not the 1245 property within real property.

    My understanding, and correct me if I'm wrong was that is: 

    In general, the definition of real property under section 1031 is determined by state law. In contrast, the definition of real and personal property (1250/1245) for tax-depreciation purposes is determined under federal law. State law tends to classify fixtures in a building as real property. Therefore, property such as wall coverings, carpeting, special purpose wiring or other installations affixed to the building can be considered real property under state law and like kind for section 1031 purposes, but personal property in cost segregation studies. Thus, real estate owners can benefit from both the gain deferral under section 1031 for real estate exchanges and the enhanced cost recovery deductions of the cost segregation study.

    @Dave Foster you posted about this a few days ago as well.  Has anyone heard anything concrete that the definition has changed, or are we just speculating?

    My comment is based on a real estate mindset because we are on a real estate forum.

    You make a good point, what is classified as real property under Section 1250 may not jive with what is considered real property under state law.  However this change makes it more clear that qualified 1031 property will be determined under the criteria for 1250, not the ever differing state property laws.

    I don't know about your state and it has been a while since I have read about the property laws in MN, but in MN, fixtures used in a trade or business are considered "trade fixtures" and are not a part of real property.   This was quite clear 10 years ago, in MN, but this could have changed.  A realtor with their course book could probably clarify.  Believe real property also includes the "law of fixtures" but this was defined differently for residential and commercial property.

    A cost seg breaks down a property into different categories, largely real property and personal property.  The overall goal was to increase depreciation and reduce tax cost.  When exchanging these assets, the taxpayer would then be exchanging a building (classified for tax purposes as real and personal property) for another building (classified as real property) and the transactions seemed to go through fine.  I think this is the government saying you can't have it both ways, it is either real property or it is personal property and look to the code sections to clarify.  That is why I think this adds some clarity.

    I am sure we will get more guidance through regulation.

    0Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Jeff Sheraton:

    Could someone explain this to me:

    "7. Bonus depreciation is now 100% for assets with a useful life of less than 20 years."

    Let's say you place in service an asset that is 15 year property.  Under normal rules, you will depreciate the cost over 15 years.  Bonus depreciation allows for a "bonus" or increase to the depreciation amount.  In the instance where this 15 year asset qualifies for bonus depreciation, you will be able to take a deduction for 100% of the purchase price instead of over 15 years.  

    The bonus percentage changes frequently, it was 50% in 2017 until the new plan which bumps it to 100% for the back half of the year and for a period beyond. 

    2Reply
  • Austin M.
    Real Estate Professional · Royal Oak, MI · Member since 2012 · 32 posts · 15 votes
    8y
    NAR is reporting that realtors will qualify:

    https://www.nar.realtor/tax-reform/the-tax-cuts-and-jobs-act-what-it-means-for-homeowners-and-real-estate-professionals

    Originally posted by @Fausto Carosella:

    So let me see if I can get this straight: Being a Real Estate Broker/Agent operating as an S Corp I would NOT be able to take that 20% deduction because I am one of the"Service Industries", therefore I would be taxed at my individual tax rate?... UNLESS my income is LESS than $157,500 at which point I could take the 20% deduction....? It appears as though it would be more beneficial to become a C-corp if income will be more than $157,500 the tax rate would be 21% no matter what level the income? Also I know personal deductions have been eliminated, but what about deductions for business expenses like mileage or meals when we take out a client for example? Thanks....

    1Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Michael Guzik:

    @Brandon Hall Hey guys I apologize for my ignorance but I have no idea wtf any of this stuff means. I'm looking to get my first property by house hacking and am wondering how or if this will impact me? Could ya'll dumb it down so I can understand what this will change. Thanks and sorry lol!

    To dumb this down my recommendation is that you completely ignore these changes because they won't have a large affect on your situation.  Worry about finding a property that works and jump on the band wagon! 

    If you are a high wage earner, have kids, etc you may want to have a quick call with your accountant.

    8Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Austin M. Interesting point. I'm actually not sure. Unadjusted basis is defined throughout the IRC as the original cost basis. I searched through the code this morning and didn't anything that explicitly rules out land from the definition of "unadjusted basis." The Tangible Property Regs released in 2014 that constantly refer to the "building's unadjusted basis" thus excluding land. But the question is - what is the "property's" unadjusted basis? I feel that the GOP plan is referencing the entire cost basis, including land, but I could be wrong. 

    @Chihiro Kurokawa you will receive an allocated portion of the passthrough deduction. 

    @Jeff Sheraton basically, you can now fully write off assets that have a useful life of 20 years or less. Since rental properties are depreciated over 27.5 years, they don't qualify for 100% expensing. But ripping up the old driveway and replacing it with a new one would qualify for 100% expensing because land improvements have useful lives of 15 years.

    @Michael Guzik hang in there, it's only going to get more confusing as we find more loopholes :)

    2Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Austin M. realtors will not qualify as they are a service business UNLESS the taxpayer's taxable income is below $157,500 ($315,000 if married).

    1Reply
  • Michael Masters
    Rental Property Investor · Westport, CT · Member since 2017 · 176 posts · 183 votes
    8y

    My biggest problem with this tax bill is now I know the day I'm going to die....December 31 2026.  After that the estate tax threshold goes back down.

    Starting my tax planning now, renting a boat for me sale into the Bermuda Triangle circa December 2016.

    4Reply
  • Joseph M. Wise
    Denver, CO · Member since 2017 · 1 post · 0 votes
    8y

    I really hate to be the guy that uses a (fantastic) forum thread to address his own particular circumstances........but here I go!

    I have 3 questions:

    1) Regarding the non-deductibility of HELOC interest (unless it's traceable to a purchase of, say, a rental property). I have 3 HELOCs all on rental properties (not my primary residence). I can trace some of their balance to the purchases of other rental properties, but, not all. Is the untraceable portion of their interest deductible in 2018 on a schedule E? Would an LLC be required to claim all of that interest? Or is untraceable HELOC interest simply not deductible at all?

    2) I did read the entire thread, but, I just want to verify that ALL discussions which apply to the tax changes for LLCs (including the 20% gimme deduction) also apply to Schedule Es for individual returns. I've read elsewhere that an LLC is required to reap those benefits, however, it sounds like the conclusion reached here is that an LLC is not required as long as it all lands in the schedule E.

    3)  I'm sure this is a ridiculous question, but, we're all talking about creative ways to exploit this new system so....

    Let's say I have 3 rental properties.  They all show profit on their schedule Es of 10k each.  Would it be possible to create nested LLCs so that the 20% tax break ends up applying multiple times?

    So, LLC A would include property A. K1 for LLC A shows profit of 10k

    LLC B would include property B, property C, and K1 from LLC A (so that it's primary value came from properties, not from LLC A). LLC A profit of 10k gets discounted to 8k via 20% gimme deduction. Resulting K1 for LLC B would be 28K. (8k from LLC A, 10k from property b and 10k from property c)

    On my individual return I would take 20% gimme deduction from the LLC B K1 resulting in taxable income of $22,400 (instead of $24,000 if they were in one, flat llc).

    Thanks again!  This thread has been the most valuable thing I've seen on the subject!!!

    0Reply
  • Fausto CarosellaPro Member
    Real Estate Broker · Boca Raton, FL · Member since 2014 · 98 posts · 23 votes
    8y

    Thanks for the link to the article @Austin M. It did well explaining everything, however I feel like there's still going to be mass confusion for a while.... 

    0Reply
  • Amy Webber
    Investor · Simpsonville, SC · Member since 2016 · 135 posts · 73 votes
    8y

    @Brandon Hall

    Thank you for the reply regarding 529's.  It sounds like we could put the funds back if the time window allows and then use that for tuition to avoid any 2017 withdrawal penalty on the earned part. Whether it is worthwhile to "run the monthly tuition payment" through the 529 plan or not will require further research and consultations.

    FYI - My accountant (also a real estate investor) had also put forward the suggestion regarding the paying our boys (9 & 11) for their work on the properties and funding Roth's for them rather than continuing with the 529 deposits.  Reading (and rereading) your post helped us definitely understand the logic better.  Setting up these Roth accounts was on the agenda for this upcoming year.

    Unfortunately, Dennis (our accountant) passed away unexpectedly a few months ago.  I am going to miss our conversations even more than his accounting services.  He did have a partner that is taking care of us for now but he seems to be less supportive of/interested  in real estate investing overall.  We trusted Dennis so we are giving his successor the benefit of the doubt but are trying to keep a closer eye on it all. Time will tell especially with all these new changes.

    Thank you again,

    Amy

    2Reply
  • Austin M.
    Real Estate Professional · Royal Oak, MI · Member since 2012 · 32 posts · 15 votes
    8y
    Based on these rules if you bought your houses at very  low prices then you don't really get a deduction on your taxes. The 2.5% would apply to a low cost basis... "Combined Qualified Business Income Amount (in general) is the lesser of"

    Originally posted by @Brandon Hall:

    I want to take a minute and show an example related to the new pass-through deductions. 

    Sole proprietors, LLCs, and S-Corps that are not service business (unless they are below the wage thresholds...explained later) now qualify for a deduction on "combined qualified business income." The deduction is equal to the sum of: 

      • The lesser of:
        • Combined Qualified Business Income, or
        • 20% of the excess of: the taxable income divided by the sum of any net capital gain.
      • The lesser of:
        • 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer, or
        • taxable income reduced by the net capital gain.
        • --
    • Combined Qualified Business Income Amount (in general) is the lesser of:
      • 20% of the qualified business income with respect to the qualified trade or business, or
      • The greater of:
        • 50% of the W-2 wages with respect to the qualified trade or business, or
        • The sum of 25% of the W-2 wages with respect to the qualified trade or business, plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property. 

    --

    As an example, let's assume we don't have capital gain or qualified cooperative dividends. Let's also assume that we have a $1MM property that produces $100k in net income. The property is held in an LLC and does not pay W-2 wages.

    Because we don't have capital gain or dividend income, all we need to do is determine "combined qualified business income."

    In this example the deduction will be the lesser of: 

    (1) 20% of the net income ($20,000) or
    (2) the greater of:
       (2a) 50% of wages paid ($0); and
       (2b) 25% of wages paid ($0) PLUS 2.5% of the basis of the property ($25,000). 

    Because $20,000 is less than $25,000, you would take a $20,000 deduction on your tax returns. 

    Note that if an individual's taxable income (that means ALL income) is less than $157,500 ($315,000 if MFJ), you do not have to go through this calculation. Instead you just take a 20% deduction on qualified business income. Additionally, all service businesses (realtors, lawyers, property managers, accountants, etc) will be able to take the deduction if the individual's taxable income is below these thresholds. Once taxable income goes above these thresholds, service businesses are phased out of the deduction.

    Last thing - the deduction is calculated on a business-by-business basis. That means that you can have five businesses and each business will need to run through these calculations to determine the deduction. Additionally, you can be a PARTNER in businesses and (we're assuming) the business would need to tell you what your allocable share of the deduction is.

    1Reply
  • Brandon Hall
    OP
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    8y

    @Austin M. correct. If you have low basis property, you may be out of luck.

    0Reply
  • Terri Ring
    Clovis, CA · Member since 2017 · 18 posts · 9 votes
    8y

    Thank you for starting this thread. I know a lot of us are wondering how this new tax will affect our pocketbook.

    0Reply
  • Account Closed
    Los Angeles, CA · Member since 2017 · 6 posts · 8 votes
    8y
    Originally posted by @Ron Hall:

    5. C-Corp tax rate reduced to 21%.

    What about LLC's and S-Corp?

     Incorrect, C-Corp tax rate reduced to 21%

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y
    Originally posted by @Brandon Hall:

    So my team and I have literally been sitting around all day to dream up new strategies for our clients (who are all real estate investors).

    Here's one that we've come up with.

    For new acquisitions, if the rental will likely generate passive losses, allocate more basis to land and take less depreciation. 

    The new pass-through deduction is a freebie. But the deduction is only available if you have net taxable income after all expenses, including depreciation and amortization. 

    So when you buy the next property, allocate more basis to land. This will reduce your depreciation expense. But if you have a smart tax advisor, you can likely net out the lost depreciation expense with this new freebie deduction. 

    The tax benefit is realized on the sell-side. When you liquidate a rental, you pay depreciation recapture taxes on the depreciation you've taken over the life of the rental. 

    So if you report less depreciation over the hold period, you pay less recapture taxes in the end. But best of all, it didn't hurt you during the hold period because you utilized this new freebie deduction each year to bring your taxable income down to $0.

    Note: this is not a relevant strategy if you purchase property that is likely to produce high amounts of net income after depreciation every year (NNN, Commerical, Large Apartments, Short-Term Rentals).

    Second Note: more planning will be required for folks that want to utilize cost segregation. You don't want to crush it on the cost seg side and not be able to utilize this freebie deduction because you no longer have net income to report. 

    This is an interesting strategy, but I see two issues:

    1.  I understand the IRS gives latitude on how you allocate value between land and structure. For example my county taxes split land and structure. I use the land value and subtract that from the purchase price to get basis. It is logical, defendable and consistent on all my properties. My concern would be if I suddenly started claiming half the purchase price as land value, it would be inconsistent with previous purchases and inconsistent with the county assessment. It seems an investor could be playing a dangerous game here.

    2. Between depreciation, expenses and interest, I have a net loss on my rental properties. I am not sure I could adjust the land value enough to make a significant profit. I ran some numbers and although I could force some profit, 20% credit would not be much money. It is better for me to take higher depreciation. I agree it would help when I go to sell, but assuming I perpetually exchange the properties, it doesn't matter.

    My situation may be different than others. I have become accustomed to loading my properties with enough expense to claim a loss against my W2 income. I could see this strategy being more effective for people who pay cash for their properties. If I subtract my mortgage interest, the properties start getting more profitable.

    Thanks for all your insight, especially the strategies on how to use the new rules to your clients advantage. 

    4Reply
  • Chase Gochnauer
    Investor · Des Moines, IA · Member since 2015 · 380 posts · 201 votes
    8y

    @Jeff Sheraton basically, you can now fully write off assets that have a useful life of 20 years or less. Since rental properties are depreciated over 27.5 years, they don't qualify for 100% expensing. But ripping up the old driveway and replacing it with a new one would qualify for 100% expensing because land improvements have useful lives of 15 years.



    @Brandon Hall Would this then mean that if you do a cost seg study and a lot of items come in under that 20 year mark, they could be immediately depreciated? Example I'm closing on a $4.25m apt complex and doing a cost seg study. So if the parking lot ends up being valued at $50k for a 15 year depreciation, I wonder if I could write that off completely next year? 

    2Reply
  • Account Closed
    Los Angeles, CA · Member since 2017 · 6 posts · 8 votes
    8y
    Originally posted by @Chase Gochnauer:

    @Jeff Sheraton basically, you can now fully write off assets that have a useful life of 20 years or less. Since rental properties are depreciated over 27.5 years, they don't qualify for 100% expensing. But ripping up the old driveway and replacing it with a new one would qualify for 100% expensing because land improvements have useful lives of 15 years.



    @Brandon Hall Would this then mean that if you do a cost seg study and a lot of items come in under that 20 year mark, they could be immediately depreciated? Example I'm closing on a $4.25m apt complex and doing a cost seg study. So if the parking lot ends up being valued at $50k for a 15 year depreciation, I wonder if I could write that off completely next year? 

    Where did you see that a driveway only last 15 years? IMO a concrete driveway should last forever!

    0Reply
  • Chase Gochnauer
    Investor · Des Moines, IA · Member since 2015 · 380 posts · 201 votes
    8y
    Originally posted by @Account Closed:
    Originally posted by @Chase Gochnauer:

    @Jeff Sheraton basically, you can now fully write off assets that have a useful life of 20 years or less. Since rental properties are depreciated over 27.5 years, they don't qualify for 100% expensing. But ripping up the old driveway and replacing it with a new one would qualify for 100% expensing because land improvements have useful lives of 15 years.



    @Brandon Hall Would this then mean that if you do a cost seg study and a lot of items come in under that 20 year mark, they could be immediately depreciated? Example I'm closing on a $4.25m apt complex and doing a cost seg study. So if the parking lot ends up being valued at $50k for a 15 year depreciation, I wonder if I could write that off completely next year? 

    Where did you see that a driveway only last 15 years? IMO a concrete driveway should last forever!

     We don't want the IRS to think it lasts forever or you couldn't write any of it off!

    2Reply
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