All Forum Posts by: Scott Davidson

last sentence should say “force them and not let them walk through “

Tenants lease ends today and did not provide 15 days notice for move out inspection as required in my state. They are planning to give us the keys at the move out inspection even though the lease explicitly states that keys must Be returned within 24 hours of lease end. Should I just let them come to walk through and get keys then or force them to return the keys before and let them walk through?

@Ray Johnson developers that build over 10 units in a new project in dc are required to include IZ units. They do not get breaks and frequently the only benefit they get is increased density. You unfortunately won’t get any breaks for renting an IZ unit and you’re supposed to run the rental process through DHCD. Hope that helps

I assume you mean as an investor in a partnership? The elections for depreciation are elected at the partnership level. 

The method of depreciation that the IRS uses (MACRS) is accelerated depreciation. The accelerated portion applies to a variety of asset types. A cost segregation study can segregate assets into the proper asset types and allow for increased accelerated depreciation.

Other examples of accelerated depreciation include bonus depreciation and 179 deduction. 

All of these forms of accelerated depreciation can be achieved through investments in real estate partnerships/other business. Either way, the partnership makes the election for all of these.

Let me know if you have any other questions.

@Joe Splitrock A couple items on the analysis. The 20k is not equal. One is pretax, one is post tax. Additionally, the average return on S&P is 7% and the S&P averages a 2% dividend payout. 

Another consideration, actively managed or property manager? I ask because one is truly passive and I think we all know rentals are not 100% hands off.

Other points of consideration are risk adjusted return and exit value as well taxability over the lifetime of the investment. The rentals may or may not be a taxable write off depending on income.

All this is to say that I think there are too many variables to get an accurate picture of which is better or worse based on a financial analysis. We could all quibble all day on some of the variables.

As a hedge, if I was able to get a free $18k a year, I would take it. If saving the $18k/year precluded me from investing in real estate, I would do a deeper dive. As others have said, there's no reason not to do both.

Yes, you have to recapture depreciation upon sale. The IRS uses "allowed or allowable" as mentioned above. To fix the issue, you file a Form 3115 with a 481(a) adjustment to catch up on the depreciation you did not take. 

@Jessie Tetreault @Justin Tahilramani 1/2 right on each.

The property is placed in service at the time of conversion. The depreciable basis is the lesser of fair market value or adjusted basis (acquisition cost + improvements, generally) at the time of conversion. 

@Andy D. 3115 will catch up on all missed depreciation via 481(a) adjustment, not just the three year period

You can try Harvey S. Jacobs

http://www.jacobs-associates.com/

@Lance Lvovsky Can you provide a reference on that? Not trying to challenge you, I just don't see where in the regs it specifies that de minimis can't be taken on real property. 

"Under the final tangibles regulations, you may elect to apply a de minimis safe harbor to amounts paid to acquire or produce tangible property"

https://www.irs.gov/businesses/small-businesses-se...

The FAQ also references production of real or personal property.

My understanding of Tang. Prop. Regs. is that it's a multi step process, the first of which is to determine if the expense meets an exception to capitalization. The exceptions include the de minimis amount, which can be used on acquisition of any tangible property. I didn't think the UoP mattered for de minimis and was only examined after no exception to capitalization is met. The property is then viewed through the lens of its relation to the UoP to determine if it's a Betterment, Restoration, or Adaptation. Let me know. Thanks.