bonus depreciation questions

[Robby Sanchez]

Hey everyone, i had a question about depreciation, i will give you my situation as an example. i currently own 1 single family that i have been renting out since 2021 and i just bought a duplex in march of 2024 in which one side is my primary residence and i am renting out the other side. I plan to sell quite a bit of stock this year (2024) in order to fund some renovations and want to use the depreciation of these properties (if possible) to offset my capital gains when i sell the stock. Am i thinking about this correctly? I have googled alot of information but it is hard to wrap my head around this specific subject. 

- how can i get a rough estimate on how much the properties will offset? does BP offer a calculator like this?

-if i used bonus depreciation on my single family when i did my taxes this year for 2023 what does that mean for future years moving forward regarding the depreciation for the single family??

- should i use bonus depreciation every year?

-does depreciation work the same in the duplex since i am living in one side and renting the other? do i only depreciate the side that i am renting out? 

-what is the most often used depreciation strategy or what kind of strategies do you use?

thank you !

[Joshua Thompson]

Hey Robby, how have things been!? I can't say for sure if the BP calculator offers such a calculation as your tax situation impacts how the depreciation will effect your return.

By bonus depreciation I'm assuming you're referring to doing a cost segregation, if this is the case you'll definitely want to review your tax return to determine if you can even take advantage of a cost segregation. If your income isn't in a certain range or if you're not a real estate professional (amongst other items) the cost segregation might not be beneficial. This is assuming the value of the property makes sense to do cost segregation. 

If you use bonus depreciation (cost segregation) this year that will mean in future years you'll most likely have less depreciation for that property.

When to use bonus depreciation, section 179 depreciation, cost segregation etc. should be a conversation/analysis you have with your accountant either mid-year doing a tax projection or prior to your tax return being filed.

Good question!

[Jason Watson]

Totally agree. We do this analysis all the time... we find a nice "Estimator" for the costseg, and whack it against your 2024 tax plan to see how it all shakes out. But certainly a question for your tax pro.

[Michael Plaks]

No, @Robby Sanchez, you are not thinking about it correctly, and my overly enthusiastic colleagues are fueling you with false hopes.

1. It is possible that you may not benefit from additional depreciation at all. Read this: https://www.biggerpockets.com/forums/51/topics/1121063-expla...

2. Selling stocks cripples your ability to benefit from depreciation even further.

3. If you can benefit, then regular depreciation is a very small deduction, except for...

4. Sometimes you can have a ONE-YEAR boost of bonus depreciation resulting from cost segregation.  Read this:
https://www.biggerpockets.com/forums/51/topics/1075919-five-...

5. Once you did it once, the game is over for this property. You ate the cake. 

6. Yes, you only depreciate the rental side.

7. The most efficient strategy ALWAYS depends on your specific situation. No universal advice.

[Jason Watson]

Yup. Tax planning is a must... situational based tax planning. I am always surprised at how many taxpayers don't want to pay for tax planning so they can make informed decisions. Rather, and as Michael alluded to, they take a one-size fits all approach to these things. Reminds me of Dave Ramsey or that Profit First nonsense.

Also... Michael's #4 above is something so many people overlook. Costseg + bonus is a one-time shot from the tax gun. Having said that, we try to time it with unusually high income (like selling stock or getting big bonus or a big spike in biz income).

[Markus Shobe]

Get a real estate tax pro. They will be well worth the money spent. They can answer all these questions and more. 

[Bill Hampton]

@Robby Sanchez

I recommend finding an accountant who specializes in real estate taxation and tax planning. You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

Good luck.

[Zachary Jensen]

Quote from @Robby Sanchez:

Hey everyone, i had a question about depreciation, i will give you my situation as an example. i currently own 1 single family that i have been renting out since 2021 and i just bought a duplex in march of 2024 in which one side is my primary residence and i am renting out the other side. I plan to sell quite a bit of stock this year (2024) in order to fund some renovations and want to use the depreciation of these properties (if possible) to offset my capital gains when i sell the stock. Am i thinking about this correctly? I have googled alot of information but it is hard to wrap my head around this specific subject. 

- how can i get a rough estimate on how much the properties will offset? does BP offer a calculator like this?

-if i used bonus depreciation on my single family when i did my taxes this year for 2023 what does that mean for future years moving forward regarding the depreciation for the single family??

- should i use bonus depreciation every year?

-does depreciation work the same in the duplex since i am living in one side and renting the other? do i only depreciate the side that i am renting out? 

-what is the most often used depreciation strategy or what kind of strategies do you use?

thank you !

 Hey Robby, 

If you used accelerated depreciation that will shorten the life of the deprecation so you can write off more sooner. 

Please keep in mind under section 469 you have "active income" and "passive income". The reason this matters is that your "active losses" can only offset active income. Same thing with passive losses.  

The decision to use or create deprecation depends on the income needed to offset. For you since your selling stocks, passive losses would be the one you would want to create (which are easier, also I'm assuming you have held your stock longer then 12 months). You should create losses via bonus deprecation if you actually plan to offset gains with it 

[Basit Siddiqi]

The income from the sale of securities is considered 'portfolio income' and is considered non-passive.

Rental activity in general is considered passive unless you are able to treat it as active or if your income is below $150,000(Then you can use some losses).

By default, the answer will be you can't unless your real estate is considered active or if your income is below the exception.

[Corby Goade]

Some good advice above. 

Depreciation is finite- with each component you accellerate, you will empty the bucket for future depreciation of that component. 

Once you choose your depreciation schedule, you cannot modify it mid stream, you are on that path until you either sell the property or deplete the depreciation life of that component. 

You need to talk to a tax pro, which I am not. There is so much incorrect and terrible advice on these forums, especially related to tax strategy. 

I'd check out Natalie Kolodij's podcast- she knows her stuff and she makes the concepts simple and interesting. 

Best of luck!

[Robby Sanchez]

Quote from @Basit Siddiqi:

The income from the sale of securities is considered 'portfolio income' and is considered non-passive.

Rental activity in general is considered passive unless you are able to treat it as active or if your income is below $150,000(Then you can use some losses).

By default, the answer will be you can't unless your real estate is considered active or if your income is below the exception.

My income is below 150k

[Robby Sanchez]

Quote from @Basit Siddiqi:

The income from the sale of securities is considered 'portfolio income' and is considered non-passive.

Rental activity in general is considered passive unless you are able to treat it as active or if your income is below $150,000(Then you can use some losses).

By default, the answer will be you can't unless your real estate is considered active or if your income is below the exception.

I also manage my real estate which would make it active right?

[Ashish Acharya]

You're on the right track considering using depreciation to offset your 2024 capital gains, but there are a few important details to consider. You do need to be REP or have STR to use the losses from rentals to save your taxes.

Since you started renting your single-family home in 2021 and just bought a duplex in 2024, you can use depreciation to reduce your taxable income.

If you took bonus depreciation on your single-family home in 2023, it means you accelerated a large portion of that deduction into that year. This could reduce what’s available for future years, potentially leading to higher taxable income in 2024 and beyond. If you have not taken the cost seg deduction, please look in filing 3115.

You can only depreciate the rental side of the duplex you bought in 2024, not the part where you live. While you can’t take bonus depreciation every year, you can take it in the year the property is placed in service or when you make eligible improvements.

To get a rough estimate of how much you can offset, you should use a depreciation calculator or consult with a tax advisor.

[Zachary Jensen]

Quote from @Robby Sanchez:

Hey everyone, i had a question about depreciation, i will give you my situation as an example. i currently own 1 single family that i have been renting out since 2021 and i just bought a duplex in march of 2024 in which one side is my primary residence and i am renting out the other side. I plan to sell quite a bit of stock this year (2024) in order to fund some renovations and want to use the depreciation of these properties (if possible) to offset my capital gains when i sell the stock. Am i thinking about this correctly? I have googled alot of information but it is hard to wrap my head around this specific subject. 

- how can i get a rough estimate on how much the properties will offset? does BP offer a calculator like this?

-if i used bonus depreciation on my single family when i did my taxes this year for 2023 what does that mean for future years moving forward regarding the depreciation for the single family??

- should i use bonus depreciation every year?

-does depreciation work the same in the duplex since i am living in one side and renting the other? do i only depreciate the side that i am renting out? 

-what is the most often used depreciation strategy or what kind of strategies do you use?

thank you !

 everyone else has already left great answers, I just want to add if you are purely a buy and hold investor: using bonus deprecation aggressively as early as possible is usually a great way to go.