All Forum Posts by: Bonnie Griffin Kaake

Hi Tyler, @Brian Malavsky had some good advice for you about HOAs. You have a lot of investigative work to do before you could consider a STR in your current home. Even then, it is not likely the HOA will be open to it. Check your HOA documents, some do not allow rentals less than a year in length. That would eliminate MTRs as well.

A long-term rental may be your best bet for your existing home. Don't forget, a cost segregation study will give you about 5-8% of your original purchase price plus renovations you may have done, in taxes you will not have to pay until you eventually sell the property and then at less than you received with the cost segregation study. Your best bet would likely be to get out of your current home and have it ready rent/advertised/or rented before the end of this year. That will give you the best return with a cost segregation study. 

You are not likely to get away from paying that $80K-$100K in tax liability on your W2 income. If you are married and your spouse can qualify as a RE Professional now or later, you may be able to use the benefits on cost segregation on your rental home against your income. It sounds like you could definitely use a RE knowledgeable CPA/tax professional to guide you as you move forward. Let me know how I might be of help to you.  

@Irving Casas Depending on what rooms have carpet, you may want to use the more popular vinyl plank flooring. If the total cost of the flooring replacement is over $2,500, you could get separate invoices for the labor versus the materials and expense both if they are under $2,500 each.  

@Irving Casas  I would also ask them what needs up-grading. You may already know but ask them. After a tenant has lived there that long, carpet may need to be replaced, appliances, etc. They will be pleased and all work and expenses under $2,500 can be expensed by you. It would cost you more than $2,500 just to upgrade later and advertise for new tenants. 

@Phil Contreras  The only way to know is to get a no cost pre-analysis on your property. You may or may not be too late. There too many factors to consider. Why guess when all you have to do is answer some questions you already have the answers to. 

@Laleh Omaraie  If you have not done your 2022 tax filing (extended your taxes), you don't need a 3115 Change of Accounting form. We can still get a study done if we act quickly. Doing quality cost segregation studies to assure IRS compliance is NOT a DIY project. It is complex and you will need both a specialist in cost segregation and a good real estate CPA/tax professional. Let me know if you have additional questions of if I can be of help. 

@Lucas Ayers As @Julio Gonzalez said, it is recommended doing the cost seg prior to rehab. Of course, some items will need to be done to get an occupant in the first year. Some of those may be expensed items or items that will need to be included in the cost seg. The advantage of doing the study in the first year and renovation later is that you can use what is call Partial Asset Disposition in the second calendar year after purchase to reduce your taxes. This is complex and you will need a good RE knowledgeable CPA and partner with a "quality" cost segregation company to get the advice you need to maximize your tax benefits and cash flow. BTW, ALL STRs have to be depreciated over 39 years, not 27.5. 

1. If cost seg gives you more deductions that you can use in the year the study is done, yes, you can roll it forward until you use the entire amount. 

2. Current rental becomes your primary residence...you need to discuss this with your CPA/tax professional. You may have recapture tax to pay but it should be less than the original amount you received. Also, you will not be entitled to on-going depreciation once you move back in. 

3. STR - This is a complex question and timing, occupancy date, and what is being done in the rehab process are critical to answering your question and guiding you in the right direction.

4. There are no bad questions! Everyone has to start somewhere. When you do a 1031 on a property that you have done cost seg on, you will not have to pay recapture tax. At the same time, you can do another cost seg on the difference between your relinquished property and the new purchase in most cases. 

5. I include the expected ROI in my estimates. Talk to your CPA/tax professional and they can give you this information based on the study you received.

I hope this helps. 

@Dat Tien Vu  The best way to start is to get an estimate and ask a lot of questions. The IRS' preferred methodology is a quality engineering-based study. If you get more than one estimate, read the fine print and know what you are getting and that you are comparing apples with apples. So much can be hidden in the fine print. Don't make the decision strictly on price or what they TELL you that you will get just to get the work. Most legitimate companies will prepare a well thought out estimate for you at no cost and stand behind it. 

@Damian Callaghan   Have you considered doing cost segregation on the other properties you own? It is like getting a free loan from the IRS. If you didn't have Federal taxes to pay on the other properties it just might give you some wiggle room for further investing and leveraging what you do have. 

@Eric Don Don't forget to calculate cost segregation into your numbers. The tax and cash-flow benefits are quite significant. You may not have federal or state taxes to pay for a while. As you get closer to realizing your next step, whether that is purchasing a self-storage facility or building one, estimates that you can rely on are free.