Has Anyone Utilized 100% Bonus Depreciation for Tax? Thoughts?

Question

Hi All! - Has Anyone utilized Bonus Depreciation on their rental property? - Did you use a Cost Segregation Study or did you do it yourself?

A bit of background: Generally with real estate.. you deduct the loss of an assets value over a span of 27.5 years (straight line depreciation) - However, In 2017 - The IRS put in place "100% bonus depreciation" - allowing us to write off / deduct some assets at 100% in their First year-  From what I understand, the rule of thumb for depreciation is 20% of the homes value (not land)

This can be advantageous tax wise if done correctly. Unfortunately, I don't know anyone who has used it. If you have utilized it - any feedback would be appreciated =)

Greg Scott · Answer

I used bonus depreciation on an apartment complex.   Taking bonus depreciation does require a cost segregation of one form or another.  The IRS recognizes several different ways to do cost seg, with varying degrees of precision and therefore protection from audits.

If you plan on investing ongoing in real estate, I don't see a reason why you wouldn't take bonus depreciation unless the size of the asset does not make it worth the trouble.

Taylor L. · Answer

Cost seg is very popular in the apartment space. Probably 3 out of 5 passive investors I talk with ask about whether we do cost seg & pass depreciation on.

Yonah Weiss · Answer

Smart investors ;)

Ashish Acharya · Answer

Yes, this happens all the time.

You don't need a cost seg to deduct purchases such as appliances or such. You can take the 100% bonus on them when you purchase them for the rentals.

The cost seg applies when you buy a property and want to segregate the cost between various classes of assets. This is usually beneficial for bigger properties, not SFHs.

Michael Plaks · Answer

@Kodi Clark

You happened to post on the forum where hundreds of investors have done cost segregation. Search this forum for "cost seg", and you will find a lot of old threads where people shared tips and their experiences. For example:

https://www.biggerpockets.com/forums/51/topics/831924-beware-how-cost-segregation-is-sold-to-you

https://www.biggerpockets.com/forums/51-tax-legal-issues-contracts-self-directed-ira/topics/938725-cost-segregation-study-for-taxes

Also, make sure to contact @Yonah Weiss who replied earlier and who is our resident expert on cost segregation.

Yonah Weiss · Answer

@Kodi Clark This is something I know a little bit about ;)

As @Ashish Acharya mentioned, certain purchases after the acquisition can qualify for 100% bonus depreciation (like appliances or furniture), otherwise you would need to have a cost seg study completed in order to identify the components within the property that depreciate under 20 years, (like 'personal property' and 'land improvements'), and are eligible for bonus depreciation.

Whether or not a it will be beneficial for you in your situation should be discussed with your tax advisor. Most cost seg companies can provide a free analysis to see what the difference of straight-line depreciation vs. cost segregation to see the potential tax benefit.

Bonnie Griffin Kaake · Answer

@Kodi Clark Acceleration of depreciation and bonus (cost segregation) is available for small (down to $200k purchase price) and large properties (up to $2billion+). All cost seg firms are not alike, do your homework.

Has Anyone Utilized 100% Bonus Depreciation for Tax? Thoughts?

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