Is this a concern to anyone? With Trump gone and the possibility of him not having paid much taxes, maybe real estate investors will have a bulls eye on their heads. It is my very basic understanding that the Tax Reform Act of 1986 crushed real estate investors by limiting passive losses. Maybe I am wrong about that since I was not personally investing while in 2nd grade.
This is not meant to be a political post, but just curious for some of you who have been around for a while? Is cost segregation well established or could that go away real quickly?
Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
5y
If you're asking about bonus depreciation going away, it's already scheduled to. Bonus depreciation is a temporary provision with a sunset.
If you're asking about "cost segregations" going away, no, they won't. In fact, it's safe enough to bet dollars to donuts that they won't ever go away, not ever.
When you purchase a "bucket of asset classes", you must allocate cost basis among the asset classes in a reasonable manner. The authoritative guidance tells us as much. A fully engineered cost seg is just one permissible method to accomplish that.
Thanks Eamonn, aside from bonus depreciation which allows us to fast forward depreciation, would you expect any changes in how RE investors use depreciation? For example, do you think 27.5 years could get lengthened or would you say that is pretty well established?
Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
5y
I would think the 1031 exchange and/or the $25k allowance for active participation in rental PALs would be more likely candidates if the goal is to bring in more tax revenue. Messing with the depreciation class life isn't worth thinking about if the goal is additional, immediate tax revenue.
Regardless, good tax planning doesn't take into consideration something for which we don't have a bill in congress and isn't even being actively talked about. It takes into consideration the here and now. We have to work with what we currently have.