Did you know that you can claim up to 100% bonus depreciation for certain properties purchased in 2020?
If you’re not familiar with this tax savings strategy, bonus depreciation is a form of accelerated depreciation that allows you to immediately expense personal property under the first year 100% bonus depreciation deduction. Personal property includes tangible assets, such as parking, specialty electrical, finishes, flooring, interior landscaping, etc.
A cost segregation study can identify certain acquired tangible property that may qualify for bonus depreciation using the MACRS approach.
Bonus depreciation will be lost for any property purchased in 2020 if not claimed before the upcoming September 15 deadline, so don't forget to discuss this with your accountant.
Are you utilizing bonus depreciation on your real estate properties?
True, this can be a boon for a very specific investor and specific situation. In most cases, a cost segregation study is not going to be worth the time or expense on a residential rental. However- if you (or your business) have high income, and by default, higher tax burdens and have purchased a large commercial investment in the last year, this can be a pretty awesome benefit to take advantage of.
One of the other challenges is that if you do take the bonus depreciation, you have to keep going bigger and bigger every year, sort of "chasing the dragon." Not that scaling is a bad thing, just that the bonus depreciation will dig a deeper hole for the user the following tax year, since they won't have the regular depreciation on that asset any longer.
@Corby Goade That's why we always recommend partner with great CPAs, specialty tax advisors, lawyers, and financial advisors, and so forth to ensure that you don't get caught chasing the dragon! There are often new tax lawyers and ways to manage the taxes, but it takes someone with that special knowledge and someone who understands your goals to help manage the taxes going forward.