100% Bonus Depreciation following up the recent podcast

7 Replies

If you listened to the newest Podcast about how the tax reform affects real estate investors (if not here's the link):

https://www.biggerpockets.com/renewsblog/biggerpockets-podcast-269-how-the-new-tax-code-affects-your-real-estate-investments-with-amanda-han-and-brandon-hall/

And you have specific questions related to 100% Bonus Depreciation or Cost Segregation, I would be happy to try to answer them.

Yonah Weiss

    @Yonah Weiss

    I have  1 comment on this excellent episode. It was mentioned that asset has to be new for bonus depreciation, but starting this year both used and new asset qualify for the bonus depreciation. 

     Thanks for sharing this. 

    I also noticed that @Ashish Acharya , thanks for pointing it out!

    Yonah Weiss

      @Yonah Weiss I asked a CPA about bonus depreciation and this is what he said:

      "The new tax law changes bonus depreciations for qualified improvement property paid for starting 9/28/2017 and on, however rental real estate is not “improvement property”. The changes only effect tenant improvements to nonresidential property. SO when a tenant rents a space and fixes it up to be a restaurant, the improvements they made get the new 100% depreciation for 1 year only (then 80%, then 60%, onwards) So I’m afraid this law change will have no effect on you depreciation wise."

      It sounds to me that he's saying, I as a landlord of a residential property would not benefit from this tax change because it wouldn't apply to me.  

      I would like to get more opinions.  What are your thoughts?  

      Originally posted by @Hiro Kitagawa :

      @Yonah Weiss I asked a CPA about bonus depreciation and this is what he said:

      "The new tax law changes bonus depreciations for qualified improvement property paid for starting 9/28/2017 and on, however rental real estate is not “improvement property”. The changes only effect tenant improvements to nonresidential property. SO when a tenant rents a space and fixes it up to be a restaurant, the improvements they made get the new 100% depreciation for 1 year only (then 80%, then 60%, onwards) So I’m afraid this law change will have no effect on you depreciation wise."

      It sounds to me that he's saying, I as a landlord of a residential property would not benefit from this tax change because it wouldn't apply to me.  

      I would like to get more opinions.  What are your thoughts?  

      Your CPA might be confusing Bonus depreciation with 179 expense deduction. 179 deduction which was also increased to 100% with the tax reform can only be applied to non-residential property.

      To clarify, the 100% bonus depreciation applies to property that has a useful life of under 20 years. This would apply to 5-year, 7-year, and 15-year property as identified through cost segregation. You cannot 100% bonus depreciate the entire property (real property)

      Any of my colleagues with to corroborate? @Michael Plaks @Brandon Hall @Daniel Hyman @Logan Allec @Nicholas Aiola

      Yonah Weiss

        @Yonah Weiss I appreciate your input.  So the benefit does apply to, say, a newly purchased duplex that I'm renovating, is that right?

        @Yonah Weiss thanks for the tag.

        @Hiro Kitagawa , qualified improvement property has become a bit more interesting than your CPA made it out to be.

        Now, there is in fact a category for owners of non-residential real property called qualified improvement property (QIP) that as of 1/1/18 replaced the old qualified improvement property (yes, same), qualified leasehold improvement, qualified retail improvement, and qualified restaurant property classification rules, as well as includes some property that would not have fallen into those buckets previously.

        The committee reports indicated that QIP placed in service on or after 1/1/18 would be eligible for a 15-year depreciable life as well as bonus depreciation rather than the standard 39-year, non-bonus eligible method applied to non-residential real property.

        However, the law was not drafted correctly, i.e., there was a technical error, and the section of the tax code describing 15-year property (Section 168(e)(3)(E)) was in fact not amended to include qualified improvement property.

        So for now, strictly-speaking, in 2018, qualified improvement property is regular old 39-year property that is not eligible for bonus depreciation.

        We do expect that a technical correction to the law will be made, but for now the IRS has actually stated that it cannot guarantee that absent legislative correction it will accept the legislatively intended change in recovery period and bonus eligibility.

        Anyway, this is neither here nor there since you have stated you are a landlord of residential rental property rather than non-residential real estate.

        And this does not affect the application of 100% bonus depreciation to both qualifying new and used property place in service after 9/27/17 and before 1/1/23 that @Yonah Weiss pointed out.

        Logan Allec

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