Fresno, CA · Member since 2015 · 552 posts · 181 votes
Hi I'm going to be doing a 1031 exchange soon
I wanted to ask and make sure
If I did about $30,000 in improvements being depreciated over 7-10 years on my old downleg property
Would this be forwarded to the Depreciation shcedule for the new property so that I could continue writing off the $30,000 in improvements on the new upleg property?
The tax reform limited 1031 exchanged to real property only - meaning 27.5/39-yr property. Most of improvements should be in this category anyway and would be included in the exchange calculations.
However, components that were treated as shorter-life property will be considered disposed in the exchange, possibly triggering some taxable gains. It's complicated and not good for a DIY project.
As @Eamonn McElroy pointed out, 7-10 yrs is most likely an error that needs to be addressed sooner rather than later.
Fresno, CA · Member since 2015 · 552 posts · 181 votes
7y
What would a kitchen remodel and bathroom remodel be on MCARS those are the big ones. We've been doing 10-15 years but again they don't last long with renters destroying them
so iwe are doing $100,000 in renovations mainly floors and kitchan repairs so can we werite off annual section 179 deduction for residential apartment building we purchased through 1031
Fresno, CA · Member since 2015 · 552 posts · 181 votes
7y
Also most under $2500 improvements can be de facto
=
Under IRS rules, you can make what's called a de minimis safe harbor election to deduct, rather than depreciate, the value of low-priced items for your business, including appliances for a rental unit. Since 2016, the limit is $2,500 per item or invoice above the cost of many refrigerators, meaning you can elect to deduct the cost of a new fridge rather than depreciating it if that's better for your tax purposes.
Fresno, CA · Member since 2015 · 552 posts · 181 votes
7y
So just checking do the depreciation schedules all forward to next propertythanks i'm getting a new more savvy accountant it's difficult to change after a decade with the same accountant.
I'm interviewing new accounants this year.
Can anyone answer the question on whether the depreciation schedules forward to anew property on a1031 exch
So just checking do the depreciation schedules all forward to next property I'm interviewing new accounants this year.
Can anyone answer the question on whether the depreciation schedules forward to anew property on a1031 exch
Your new accountant (hopefully) can.
They do transfer but not directly. The new property will have two parts: one that sort of inherits the old depreciation, and the other one brand new. Also, only real property (27.5/39-yr assets) go into exchange. The rest of the assets, along with their depreciation schedules, do not transfer anywhere. They get disposed of, as in sold.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
@Susan O. NO. Section 179 is for business Equipment and Tangible property.....renovations/repairs on an apartment building do Not qualify.
And, depreciation schedules end with the sale of the property...you no longer own the asset, so you can’t depreciate it. Your depreciation is on the replacememt property, at whatever your basis is.
@Susan O. NO. Section 179 is for business Equipment and Tangible property.....renovations/repairs on an apartment building do Not qualify.
The landlords I know some of who use the Han CPA who wrote the book from biggerpockets does the section 179 and bonus depreciation on first year. My friend uses Han and recommended I do the sec 179
So perhaps you guys should to. I guess Han is more aggressive than your accountants
So just checking do the depreciation schedules all forward to next property I'm interviewing new accounants this year.
Can anyone answer the question on whether the depreciation schedules forward to anew property on a1031 exch
Your new accountant (hopefully) can.
They do transfer but not directly. The new property will have two parts: one that sort of inherits the old depreciation, and the other one brand new. Also, only real property (27.5/39-yr assets) go into exchange. The rest of the assets, along with their depreciation schedules, do not transfer anywhere. They get disposed of, as in sold.
Thanks So i'll just ask my current accounant to put the $30,000 in renoations under 27.5 years so it gets transfered from our old property to our new property thank you!
@Susan O. NO. Section 179 is for business Equipment and Tangible property.....renovations/repairs on an apartment building do Not qualify.
And, depreciation schedules end with the sale of the property...you no longer own the asset, so you can’t depreciate it. Your depreciation is on the replacememt property, at whatever your basis is.
Wayne, one of the rare instances when I disagree with you.
Some parts of rehab do qualify as personal property and are eligible for Section 179.
In an exchange, the old basis transfers to the replacement property, along with its depreciation history, so it does not "end" in the practical sense.
The landlords I know some of who use the Han CPA who wrote the book from biggerpockets does the section 179 and bonus depreciation on first year. My friend uses Han and recommended I do the sec 179
So perhaps you guys should to. I guess Han is more aggressive than your accountants
.
"My friend recommended Sec 179"? For g-d sake, do not take recommendations on tax strategies from friends. Ditto for legal and health advice.
If the Keystone CPAs (Han's company) or one of the other professionals recommend Sec. 179 or some other tax strategy - that's one thing. But not friends.
And this has nothing to do with aggressiveness. It has to do with understanding of real estate taxation - something your current CPA apparently lacks.
@Susan O. NO. Section 179 is for business Equipment and Tangible property.....renovations/repairs on an apartment building do Not qualify.
And, depreciation schedules end with the sale of the property...you no longer own the asset, so you can’t depreciate it. Your depreciation is on the replacememt property, at whatever your basis is.
Wayne, one of the rare instances when I disagree with you.
Some parts of rehab do qualify as personal property and are eligible for Section 179.
In an exchange, the old basis transfers to the replacement property, along with its depreciation history, so it does not "end" in the practical sense.
Michael, correct me if I'm wrong, but I think Wayne is right, section 179 deductions are only for commercial, or business property and not residential rentals.
"The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. This deduction isn’t allowed for property used in connection with residential rental property. See chapter 2 of Pub. 946."
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
7y
It is my understanding, and that of at least some of my colleagues, that the tax reform removed this restriction, and the IRS publication has not been updated to reflect it.
I would not be surprised if this understanding is debatable or even proven wrong by now.
1245 property associated with a residential rental trade or business can be S179ed unless otherwise excluded by the provisions of Sec 179.
It should be noted that the only 1250 property allowed under Sec 179 is nonresidential in nature.
1245 was still excluded in the past if related to rentals. I believe that "connected with lodging" language in the tax reform opened the door to 179 for personal property used in rental business. I have seen other people interpreting it the same way.
But based on the IRS pub the @Yonah Weiss quoted, it may be that the IRS interprets lodging as hotel-type only.
I see no issue S179ing 1245 property used in a residential real estate trade or business as long as it passes with flying colors the other provisions of Sec 179.
My source for this is the highest level of authoritative guidance: Internal Revenue Code Sec 179. Particularly subsection "d" and the last sentence in Sec 179(d)(1)(A):
Such term shall not include any property described in section 50(b) (other than paragraph (2) thereof).
It's likely Pub 527 hasn't been updated. Ironically, chapter 2 of Pub 946, which it references, certainly has.
"it may be that the IRS interprets lodging as hotel-type only"
They could take that position, but we first have to examine what is lodging as it pertains to Sec 179. IRC Sec 179 directly references IRC Sec 50(b)(2):
50(b)(2)Property Used for Lodging
No credit shall be determined under this subpart with respect to any property which is used predominantly to furnish lodging or in connection with the furnishing of lodging. The preceding sentence shall not apply to—
50(b)(2)(A)
Nonlodging commercial facilities which are available to persons not using the lodging facilities on the same basis as they are available to persons using the lodging facilities;
50(b)(2)(B)
Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients;
50(b)(2)(C)
A certified historic structure to the extent of that portion of the basis which is attributable to qualified rehabilitation expenditures; and
50(b)(2)(D)
Any energy property.
I would take the position that hotel-like activity is a sub-set of lodging under Sec 50(b). Lodging is actually more broad and expansive. The Service could be difficult and say no to that. At that point, as decades of case law have prescribed, we should look to the common definition or usage of the word when there is question of legislative intent. Merriam-Webster:
Definition of lodging
1a : a place to live : DWELLING
b : LODGMENT sense 3b
2a(1) : sleeping accommodations
found lodging in the barn
(2) : a temporary place to stay
a lodging for the night
b : a room in the house of another used as a residence —usually used in plural
3 : the act of lodging
Note the first and most common definition. Again, I'm comfortable with S179 used on residential rental 1245 property.