Looking for a CPA to validate my tax strategy so I can take next steps.

[Pablo Aizpiri]

Hello,

I'm in Texas and am I wanting to discuss the possibility of kick starting my real estate investment journey with STR and also using that offset a fairly large W2 tax liability I have this year.

I basically need to know me if I'm missing something. In case anyone has any additional thoughts, here's what I'm considering:

- Using Section 179 of the tax code to reduce tax liability by using special depreciation after performing a cost aggregation study on a rental property. (https://www.irs.gov/publications/p946)
- Have a cost segregation study that has a high percentage of the cost basis as depreciable on a shorter scale so that I can use bonus depreciation to depreciate a large amount (e.g. 60-70% of purchase value)
- Run the property as a short term rental (averaging less than 7 days rented) and meet the tax code requirements for making that income active by participating "in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who didn’t own any interest in the activity) for the year." (https://www.irs.gov/publications/p925#en_US_2022_publink1000104579)
- With the classification as active income, deduct the depreciation from my taxes reducing my tax liability considerably. 

I think the biggest "catch" will be:
- Having a cost segregation study that allows deducting a large enough amount that makes all this worthwhile. Traditionally they yield 10-40% of cost basis but I'd need this to be ~80%- but I'm talking with some acquaintances who have achieved those numbers buying used duplexes the last few years.
- Meeting the active participation threshold and keeping good records I want everything to be by the book and I like to keep good records so this should be doable.

I'm a bit late to the party, as bonus depreciation is being phased out. Even this year it's only 80% as opposed to 100%. But I have some acquaintances that have been using this strategy to acquire a new property each year and effectively reduce their tax liability to zero, so I'd like to explore it.

[Eric Williams]

Quote from @Pablo Aizpiri:

Hello,

I'm in Texas and am I wanting to discuss the possibility of kick starting my real estate investment journey with STR and also using that offset a fairly large W2 tax liability I have this year.

I basically need to know me if I'm missing something. In case anyone has any additional thoughts, here's what I'm considering:

- Using Section 179 of the tax code to reduce tax liability by using special depreciation after performing a cost aggregation study on a rental property. (https://www.irs.gov/publications/p946)
- Have a cost segregation study that has a high percentage of the cost basis as depreciable on a shorter scale so that I can use bonus depreciation to depreciate a large amount (e.g. 60-70% of purchase value)
- Run the property as a short term rental (averaging less than 7 days rented) and meet the tax code requirements for making that income active by participating "in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who didn’t own any interest in the activity) for the year." (https://www.irs.gov/publications/p925#en_US_2022_publink1000104579)
- With the classification as active income, deduct the depreciation from my taxes reducing my tax liability considerably. 

I think the biggest "catch" will be:
- Having a cost segregation study that allows deducting a large enough amount that makes all this worthwhile. Traditionally they yield 10-40% of cost basis but I'd need this to be ~80%- but I'm talking with some acquaintances who have achieved those numbers buying used duplexes the last few years.
- Meeting the active participation threshold and keeping good records I want everything to be by the book and I like to keep good records so this should be doable.

I'm a bit late to the party, as bonus depreciation is being phased out. Even this year it's only 80% as opposed to 100%. But I have some acquaintances that have been using this strategy to acquire a new property each year and effectively reduce their tax liability to zero, so I'd like to explore it.

 You can reach out if you would like.

Keep in mind that 179 has both property limitations and income limitations.

Also bonus is class by class while 179 is asset by asset.

Bonus is percentage while 179 is a dollar amount.

179 also has an active conduct of trade or business which means no 212.

Also 179 is not included in the basis calculation for mid quarter calculation.

179 is not depreciation.