All Forum Posts by: Bonnie Griffin Kaake

@Harris Khan I forgot to mention that you may want to do some research on how you might be able to take advantage of replacing some gas stations with electric charging stations. Just a thought that would need research and planning. 

@Harris Khan  You are smart to position yourself for the next and upcoming market. From what I am seeing, investors are renovating old office buildings, hotels and other commercial buildings into residential apartments and condos. It takes quite a bit of planning and investment but the results are very good.

Then, investors are leveraging the available tax and cash flow benefits of cost segregation and ECO construction to their advantage. Leverage these benefits into more properties like your dad did. A lot of the tax benefits were and are not available to gas stations. If you want more information let me know. Don't pay more in taxes than you need to pay.
 

@Jordan Moorhead While you are exploring opportunities in mobile home parks, get a no cost estimate for a cost segregation study, when you start focusing on one or two. You will benefit if you don't have to pay taxes for a while until you get the upgrades in place and work on increasing your rents. You have nothing to lose and a lot to gain. 

Quote from @Brandon Tarby:

Would this apply to a park that only has tenant occupied homes? I’m new to this, could you explain what the purpose and benefit of this study?

A lot of your tax benefits are buried in land improvements to provide power, water, and sewer to each unit. In addition, the concrete pads and driveways and parking are great for expedited depreciation. This can give you cash flow instead of paying taxes on the income for some time. It may help you bring the property up-to-date quicker and fill those empty spaces. Estimates are free and will give you what you and your CPA/tax pro what you need to decide how it will fit your specific tax situation. I have done many of these with surprising results.

@Jimmy Jam  When you put your current property up for rent, it becomes rental property that can likely benefit with a cost segregation study. You may be eligible for a tax benefit that gives you more cash flow for your investment in your next property. Keep accurate records of everything you do to your current property while getting it ready for rental. Depending on your tax rate, this could result in 6-8% of what you paid for your house plus renovations in the process of getting it ready for rent. Estimates are free and will give you an idea of what extra benefit you may have. 

Quote from @Jeremy Muehlbauer:

So, we are looking at purchasing a triplex. We would ideally transition at least 1 of them over to a STR. My question is when it comes to the cost segregation study and how you can use the bonus depreciation against your W2 income with the short term loop hole. When they do the cost segregation study if only 1 of 3 of the units is being used as a STR and we are self managing the unit are we only able to write off the bonus depreciation from the 1 STR unit off against our W2 income or can we write off the entire amount of the buildings cost segregation? Any info on this would help, thanks.

Hi Jeremy, from my experience, most triplexes as you are describing are done based on the predominate rental terms. I would recommend you get a RE savvy CPA. And, get a quality cost segregation estimate done (no cost) before you go in for your first appointment.

The accounting and bookkeeping required to keep STR separate from LTR is going to be brain damage for most people. Also, consider the fact that the STR would have a depreciation schedule based on 39 years. The LTRs will have a depreciation schedule based on 27.5 years. Are you getting the picture that your fees for accounting are going to go up as well?

Quote from @Christian D.:

We are filing our taxes for an multifamily property we purchased in October 2022. Regarding depreciation, I wanted to confirm if bonus depreciation (100% allowable for 2022) is only determined by completing a cost segregation analysis or is there a way to claim bonus depreciation on a property without conducting a formal cost segregation?

Christian, the cost of an engineering based cost segregation study is well worth it. It will usually get you about 40-50% more than what a CPA can do for you. Most will not even offer, don't have the time, or the skill set, don't want the risk and I don't know one that likes doing the 3115 481a forms required for Changing the Method of Accounting when a depreciation schedules has been done straight-line previously. And, depending on what company you choose to do the study, you greatly reduce your risk of audit.

I highly recommend you get an engineering based study that offers you at no extra cost audit protection for as long as you own the property and as long as the IRS has the right to audit that depreciation schedule. This is not the place to cut corners. A good study pays for itself many times over in tax benefits and extra cash flow so you can leverage that to make more money.

Quote from @Alex U.:

IF a property has been purchased a couple of years ago, and a regular depreciation was taken for 1 yeaer, ( ie. 27.5 year depreciation), in year 2, can you do a cost segragation, and take the bonus depreciation in the 2nd year?

Yes, you can do a cost segregation study in years other than the first year of ownership. Because it requires a 3115 481a Change of Accounting form as others have pointed out, it will cost you more than it would to do the study in the first year. Don't let that deter you from asking for a no cost estimate. Another point that I didn't see mentioned is that the amount of Bonus Depreciation you get will be based on the first year of occupancy, not the year you get the study done.

Quote from @Jerome Skinner:

Thank you all for you responses! This answers my question and more. To answer your question Julio, it was that episode and I placed my rental into service this year. And Bonnie, I just bought it in 2021, so the benefit has only been lowered by 1 year. I'm lacking funds to continue my real estate investing journey and this seems like a perfect way to get a tax break sooner to help with that.

Hi Jerome, If you started renting the property in 2021 when you purchased it, that is correct. Depreciation starts, usually with straight-line depreciation, the first year you start using the property as a rental business. CPAs/tax professionals can depreciate some items but do not do engineering based cost segregation studies which require an engineer, an expert in construction, and a RE savvy CPA. If you are lacking funds to continue your real estate journey, what cost segregation can do for you is give you a relief from paying taxes you would have normally had to pay for a while. The IRS is not going to send you a check.

It is in your best interests to get a no cost estimate from a reputable cost segregation company. Then you can decide if the benefit fits your tax situation.

Quote from @Heather Hall:

Hi Bonnie and thanks for the info!  So for 2022, bonus depreciation is taken for the main home and ONLY taken in 2022, correct?

Meaning, material participation is only critical for 2022?  

If the property manager put in more time than I did, in 2023, and I do not meet “material participation” it does not matter for purposes of bonus depreciation . . . ?

Heather, that is correct that in 2023, if you do not meet the "material participation" requirement, it has no effect on bonus depreciation but it does make the property passive for 2023. This means that you cannot use any left over benefits against W2 income or other active active income. You can use any benefits rolled forward toward your passive income. The depreciation on the structure will continue for the 39 years of ownership regardless.

Another consideration you might want to know is that if you did the cost segregation study for 2023  instead of 2022, you would not need to amend the 2022 taxes you already filed. The cost segregation study will bring your depreciation schedule up-to-date with the 3115 481a Change of Accounting Form which we prepare for you and your CPA/tax pro.