All Forum Posts by: Bonnie Griffin Kaake

@Kevin Kittilsen  You cannot get a cost segregation done until you have listed the property for rent or have it occupied with a tenant. The benefits involved with cost segregation are significant and should never be overlooked. Estimates cost you nothing and the studies prepare you for additional tax benefits during your ownership years. A good engineering-based study makes doing your taxes easier for your tax professional as well. 

Hi Michael, I can answer most all your questions and more. I keep CPAs updated on this complex area of tax laws and regulations and did an hour Continuing Professional Education (CPE) class on STRs for 253 CPAs just last week. 

First, your long-term rental was likely depreciated over 27.5 years if it is a residential rental. To change it into a STR, you will need your CPA/tax professional to do a 3115 change of accounting form to file with your taxes because all STRs must be done on 39-year depreciation. If you haven't done your 2022 taxes yet, I would recommend you do a cost segregation study on your current property for 2022 before you make the change to a STR. That will give you 100% bonus depreciation. If you can't use all of it for 2022, you can always roll it forward to following years.

Keep in mind that in order to qualify for material depreciation on your STR, your average rental number of days has to be 7 days or less. And, you must put in more hours than anyone else for managing the property. Regardless whether you meet the average of 7 days or are over that, a STR is still depreciated over 39 years. A good cost segregation study will bring your taxes up-to-date and make it easier on your tax pro. 

There are a lot more considerations for your CPA/tax professional but that would be getting too far into the weeds for your current questions. I am here if you need more guidance.  

Hi Bhushan, on Wednesday of this week I did a Continuing Professional Education (CPE) class for a group of 253 CPAs on STRs. We are finding that the majority of depreciation schedules are being done incorrectly on these. The options and limitations on STRs and strategy for maximizing the ROI while minimizing the tax liability and audit risk is complex. If you need guidance, I am here to help.

@January Johnson My reference is to Federal taxation. Each state has different rules and regulations for their state taxes. Some states don't allow bonus depreciation. An investor's CPA/tax professional will know how to apply the benefits. 

@Kamil Kaczmarczyk   You are not alone in your misunderstanding. Whether an investor has REPS status or not does not determine whether you can benefit with cost segregation. The benefits of cost segregation are available whether you are an active or passive owner of RE. Some investors who have full-time W2 jobs can benefit as well and some who own STRs and materially participate in those rentals, can use the tax benefits against their W2 income. Again, you need guidance and a no cost estimate. 

@Katie Miller  Personally, I prefer the MTRs/LTRs for my own investments over STRs. Less tenant turnover, less concern about HOAs that limit or block STRs.

Everyone, please remember that MTR are for 30 days or more. NOT "more than 30 days". STRs are "less than 30 days"! Also, keep in mind that if you change from a STR to a MTR (or the other way around), your tax professional will have to do a form 3115 for the IRS to change from 39 year depreciation to 27.5 year depreciation.

@Kamil Kaczmarczyk You received some great information above from @Benjamin Matthews above. I would add to that, as soon as you are seriously considering a property or two, get a no-cost engineering based cost segregation pre-analysis/estimate. Two properties can look equally attractive until you find out one will give you far more in tax benefits and the resulting cash flow than the other. This can have the effect of "go or no-go" decisions. 

 Hi Jillyan, There are a few questions that you will need to answer to get a realistic no-cost estimate of what you can expect for tax benefits and added cash flow on this property. Jeff Nash listed some above. We do studies on properties with purchase prices of between $200K and $2.5 Billion. Let me know if I can help. 

@LeAnn Riley Yes, there are a lot of benefits to investing in Section 8/Subsidized Housing. And, you are providing a very needed product for those who really need it. We are working with a client with over 100 units right now.