All Forum Posts by: Bonnie Griffin Kaake

@Phil Contreras As others have said, yes, you can do cost segregation on your rental properties. Since every property is different, you will want estimates on each. A property can be active, which means you can take the losses against other active income, even a W2 or business income if you are the owner/occupant (think Dentist, manufacturer, car dealership, restaurant, etc.). Cost Segregation benefits can also be active on a short-term rental if you are participating at least 100 hours managing the property and more than anyone else and the property is rented for an average stay of 7 days or less. 

On the other hand, your property will be passive and any passive losses through cost segregation can be used on any other passive loss. 

Your best bet is to get a no-cost estimate or two, ask a lot of questions of the company, and discuss the results with a RE smart CPA. 

@Phil Contreras Bonus Depreciation was available before September 2017 but it was about 40-50% the year before. Get the estimate and then make the decision with a RE savvy CPA. Later in 2017 it jumped to 100% Bonus through December 2022. 

Hi Ellie, That quote for a townhome sounds a little high but so much depends on each individual property that it is best to get a good engineering-based cost segregation study which is the IRS' preferred methodology. You want to ask a lot of questions before committing to a company. Too many are cutting corners and it is not to your advantage. A "Quality Study" engineering-based, requires a site visit inside and out. An audit will cost you a lot more than a good study. Let me know if I can help. Estimates cost you nothing. 

The CPAs/tax professionals are not qualified to do an IRS engineering-based study. It requires a team of an engineer, an expert in construction, and a CPA knowledgeable about RE investments. The CPA may even have a masters degree in taxation. It also requires a site survey inside and outside of the property. 

@Erik Browning  Don't forget to factor in a good estimate/pre-analysis for a cost segregation study on any property you are considering. The tax benefit to you can be significant. It can also be disappointing if the land value is very high. The tax benefit can be 6-8% of the purchase price. Estimates/pre-analyses are at no cost. Let me know if you need more information. 

@Sandy Sandy  Is it possible to rent it now without rehab? Is there a hold over tenant in it now? Could you do minor fix up, and then list it for rent until after the first of the year to do the major stuff? This could be a big tax benefit for you and give you some cash-flow up-front with a cost segregation study. Let me know if you need more information. Estimates are always free of charge.   

@Jay Crouch  Since you inherited the property from your dad, you have inherited it at full market value $250,000 plus renovation of $55K = $305K. You could begin renting the property and getting an estimate for cost segregation study on $305K minus land value. You would have about 5-8% of the $305K minus land value in taxes you will not have to pay (after-tax cash flow) to leverage into another property. It may be worth getting an estimate/pre-analysis to help with your decision-making. When you eventually sell the property, you can either 1031 exchange it forward (still not paying the recapture tax) or sell the property and pay the recapture tax at closing. That recapture tax will be less than you received originally since the items depreciated are no longer worth what they were when they were depreciated earlier. You will also be paying with dollars that are lower in value.  

Crunch the numbers and if I can be of help, let me know. 

@Kristofer Marsh Here are a couple more options to consider. 

1. He could keep the house and do what needs to be done to update it for a tenant and maximize the rental value of the home. Then, he can list it for rent, get an estimate (at no cost) for a cost segregation study. He will have some significant tax benefits, about 6-8% of what he purchased the home for plus renovations in after-tax cash-flow. And, if he wills the property to his heirs, he NEVER has to pay that tax benefit from cost segregation back. When the heirs inherit the property, they inherit it at current market value and can do a cost segregation study again. Everybody wins and dad has some spending money that he would normally be paying the IRS. 

2. Another option is that he could do a 1031 exchange into a more expensive property or multi-family anywhere, upgrade, rent it, and do a cost segregation study on the new property and leverage the tax benefits or use as he would like. Again, when the property passes to his heirs, there will be no "recapture"...he will not have to pay back any of the benefits of cost segregation. And, his heirs inherit this property at full market value and can do a cost segregation study on their full new market value.   

If you need more clarification or an estimate, let me know. 

 @Ivan Meraz You can also add to your cash-flow while you are renting the home by doing a cost segregation study. Depending on when the property was originally purchased, at what price and when you began renting it, you could have a good amount of money available to you in taxes you don't have to pay until you sell and even then, it is usually less than what you got in tax relief. It is about the time value of money. Estimates are free and can help you decide how to maximize your cash-flow while keeping your mortgage rate low. And, whatever you put into the property to get it ready to rent may be able to be expensed or depreciated up-front as well. Don't leave money on the table that you could be using elsewhere. 

@Jt Marting  You have a lot of work ahead of you. Start by researching where you might be able to build such small units and what regulations you will have to meet. Put together your costs involved in purchasing the land, designing the units, water, sewer, electric, etc. Get an engineer involved and an architect. I am sure I am forgetting something. Of course, you want to figure out how you are going to cash flow the property and manage it as well. This is not a small undertaking. I haven't even mentioned all the legal work that will need to be done in order to leverage investors. I'll bet an experienced general contractor could help but you will need to screen them well and never pay them too much up-front! Best of luck. 

@Roman Puzey As others have said, don’t waste your time calling the hospitals.A well furnished and attractive MTR will have tenants of all kinds. It is pretty interesting the variety of people that respond on FF. Your location is key to attracting tenants. How close are you to medical facilities?  Are the mountains close and other recreational areas? Tech workers may need high speed internet. Retirees spending a summer near their kids in CO. Some want transportation near. Some going through divorce or transitioning after loss of a spouse.