All Forum Posts by: Yonah Weiss

Amazing photos and description @Matthew Olszak.

I agree with @Anthony Gayden many hot markets are in areas where the homes are old, but getting rehabbed. This makes for an influx of younger crowd, and rents tend to rise as a result.

@Kristen Ray you mentioned having trouble selling if building is old. I think if you properly rehab it, then it will be easier to sell. The other buildings in your area are also old, but yours will be renewed, and hopefully cash-flowing.

@Dave S. to preface, accelerated depreciation separates into three categories according to the Internal Revenue Code:

1. "Personal, or tangible property" depreciates over 5 years
2. "Land improvements" depreciates over 15 years
3. Building, or structural components (everything else) depreciates over 27.5 or 39 years (which may change with the new tax reform to 25 years)

That being said, some examples of 5-year property are: furniture, fixtures & equipment, carpet, decorative light fixtures, electrical costs that serve telephones and data outlets, shelves, decorative molding, etc.

Some examples of 15-year property are: parking lots, fences, signage, etc.

It is important to note, that the IRS highly recommends these property allocations (cost segregation) to be sourced according to the MACRAS Modified Accelerated Cost Recovery System, and the IRS Cost Segregation Audit Techniques Guide, and not estimated. Fail to do so puts one at high risk of failing a potential audit.

If you are doing renovations, or disposing of items within the property, it's worthwhile to have a cost segregation expert, accelerate the depreciation of the old, then can put a scrap value to those item, to write-off, and the new assets can be accelerated again. There are no general values, rather subject to appraised scrap value.

@Christian Chevier I don't work with any CPAs in your area at this time. However, for a remote CPA, I can highly recommend @Daniel Hyman CPA, and his firm My Online Accountant, LLC

Definitely well-versed in real estate.

Best of Luck!

@Damian LoBasso I have a great HML in NJ, called Arion Lenders. Very easy to work with. They do not require bank statements or tax returns. PM me for more details.

Consult with your CPA, but to my understanding, as long as the properties were owned jointly, there will be a 50% step-up in basis based on fair market value. Assuming the properties have appreciated since they were purchased, this can be a significant increase in deductions. 

If the properties are in the following states, then your Aunt can take a 100% step-up in basis based on fair market value: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, and Washington, Wisconsin. This weird-but-true rule means that one can sell assets inherited from their spouse and only owe federal capital gains tax on the post-death appreciation, if any. (Source: Internal Revenue Code Section 1014(b)(6).)

@Joel Owens great question about the change of usable life potentially going down to 25 from 39. Of-course multi-families (residential) is currently at 27.5, which wouldn't make much of a difference.

Will cost seg become less valuable if only 25 year depreciation? In my opinion, yes and no.

Getting all of the 5-year property (non-structural assets inside the building), and 15- year property (land improvements, signage) depreciation accelerated makes for major tax benefits the first 5-6 years. This is essentially the main benefit of cost seg, having more cash-flow NOW, paying less taxes NOW. This will not be affected if the law passes.

After year 6, depreciation deduction goes down, so instead of spreading over the remaining 33 years it will be spread over 19 years, is relatively insignificant. Many people are using their extra cash-flow to reinvest in more property, will do cost seg on those, and then the income tax will be offset by the new accelerated depreciation, etc.

You asked:

"On cost seg if you take advanced depreciation would that force your hand to sell sooner as you have used up all the depreciation faster?"

Again, you're not using up all of the depreciation with cost seg. Depending on the type of property, you usually end up accelerating between 10-50% of the value of the property. That gets spread over 15 years. Usually significantly over the first 5-6 years. During the remaining years of the life of the property, you are still claiming depreciation, just less.

Since the benefits for cost seg are on your income tax, it may not matter whether or not a specific property is making money or not. Cost seg is an overall benefit, so long as you have taxable income that can be offset by the depreciation deduction--cost seg makes sense. 

I would be happy to look at your specific property, and give you my opinion of roughly how much benefit could be gained from a cost seg on it.

@John Park Congrats on the two houses and welcome to BP.

Firstly, make sure you have some money available for repair reserves. Then, I would definitely reinvest in more property as soon as feasible. Of course, with $1400 a month it might take a while to earn enough for another down payment. In the meantime you could passively invest it on crowdfunding real estate platform, or partner with other investors. The money shouldn't be sitting in an account. Your money should be working for you bringing you more money.

@Jeff Greenberg I would be happy to discuss the pros and cons. PM  me.

For the edification:

Pros:

• An immediate increase in cash flow
• A reduction in current tax liability
• The deferral of taxes
• The ability to reclaim “missed” depreciation deductions from prior years (without having to amend tax returns)
• And more...

Cons:

• If your not currently profitable, extra deductions are worthless (no refunds here)
• Cost of service (usually insignificant compared to benefits)

@Bill Adams are these TICs or partnerships?

What about the two properties that are 100% yours? I would be happy to discuss with you the possibilities, as per your given situation. It depends very much on when you purchased them, and how much is the depreciable basis.