Using Cost Segregation to Claw Back Taxes w/ Corona Stimulus Bill

[Michael Ablan]

Hey guys,

If I'm reading this correctly, within the weeds of this massive stimulus bill was a pretty interesting tax loophole.....

"Businesses with losses can carry back net operating losses (NOLs) to prior taxable years and get refunds of earlier taxes paid."

https://www.nar.realtor/political-advocacy/coronavirus-aid-relief-and-economic-security-act

To me, this means that if I were to do a cost segregation study and use 100% bonus depreciation on one of my properties, I could use that massive writeoff to go BACK in time and wipe out the last two years of taxable income that I reported. This seems very advantageous to me because it would allow me to claw back cash paid to taxes in previous years, where I was in the mindset of "show as much profit as I can, so I can continue to get loans and grow my businesses."   Now I've grown my businesses, gotten those loans, expanded my portfolio, but can now LEGALLY go back in time and get all that money back and inject that cash into my future growth plays. 

Am I understanding this correctly?  Is there any reason I shouldn't do this??

[Lance Lvovsky]

@Michael Ablan

For most investors, this will not work because they are per se passive with respect to their rentals per IRC 469. The tax law disallows passive losses to be deducted unless there is passive income (small 25k exception for certain taxpayers) For this to work, you have to be nonpassive with respect to your rentals, and rise to the level of material participation. You would need to qualify as a real estate professional under the tax law which is a 2 prong test. This is rather complex and I urge you to consult with a CPA.