Cost Segregation & Accelerated Depreciation

[Darren Maloney]

Good evening. I am thinking of buying an income property before end of year, in part to take advantage of the generous Jobs Act depreciation allowance which I understand will expire 12/31/22. Does this have relevance to a SFR and 2-4 unit strategy or just more systems-intensive MF, office and industrial assets? Will appreciate any insights. Thank you in advance.

[Michael Plaks]

Quote from @Darren Maloney:

Good evening. I am thinking of buying an income property before end of year, in part to take advantage of the generous Jobs Act depreciation allowance which I understand will expire 12/31/22. Does this have relevance to a SFR and 2-4 unit strategy or just more systems-intensive MF, office and industrial assets? Will appreciate any insights. Thank you in advance.

I can't endorse buying anything solely (or even primarily) for tax reasons. If you're choosing between such a wide variety of available investments, the most important criteria is choose the type of investment that suits your business goals. Are you after cash flow? After long-term appreciation? Hands-on or hands-off investments? And so on. Starting with depreciation in mind is just wrong, IMHO.

Now, stepping down from my soap box... You're thinking about bonus depreciation. It's available for certain components of any kind of properties. For example, appliances, carpet, driveways/parking, fences, and various other components. Non-residential properties have a few extra options compared to residential properties.

However, before looking at the accelerated depreciation (100% bonus is a form of it), you need to figure out if you will be able to take these losses. It depends on the projected performance of your investment, on your financing, and on your overall financial and tax situation. In other words, it's completely case by case. 

Right now, you're basically trying to select a college for your future child before the child is even conceived.