All Forum Posts by: Bonnie Griffin Kaake

Quote from @Korey Harmon:

To all of the commercial investors, what are some things you wish you could delegate to someone else? I want to learn ways I can provide value to others but I don't know what issues commercial investors face.

Hi Korey, I have been on both ends of the commercial real estate deals, as an investor and as a now inactive commercial broker. I only wish I knew then what I know now as far as tax benefits available to investors. The RE agent/broker that understands the benefits available to their clients and who to refer a client to that has the knowledge and experience to keep the IRS red flags at bay, will add immense value to their services. I teach both CPAs and RE agents/brokers how to leverage this to their advantage.  

Quote from @Christina N.:

After completing my taxes this year for my 2 rentals (just purchased last year), I have capitals gains that are affecting my taxes with my husband and our W2 jobs. We have a long term amd short term rental in a LLC in Idaho while living in Ca. We make over 300k together without the properties. We talked to a tax specialist that stated the best way to structure our properties on these capital gains is to put our properties in non-grantor trust and create a foundation. By putting the captial gains in a foundation and donating 5% to a charity, we would eliminate the pass through income gains. My husband and I are trying to find the best way to structure our properties as well as research this strategy so we can continue to puchase more properties in the future. I am having a difficult time finding more information about this since it is pretty complicated. Has anyone heard of this or know of anyone we could talk to for a second opinion?

You are talking about some technical tax strategy here. I would highly recommend finding a good tax attorney first and get a second opinion. I have one if you need a reference. You would also benefit by getting an estimate for cost segregation on both of these properties if the purchase price of each was over $250K. This would likely off-set the passive income on each and not your W2 income. This is because you will not likely be materially participating in the STR and are not RE Professionals. You definitely need a second opinion for a tax attorney familiar with real estate investments and trusts.

@Chris Seveney  Once you get a pre-analysis/estimate (no cost), you will know exactly how you will benefit or if it is not worth pursuing. In most situations, single family rentals and condo rentals included, you can usually expect 6% to 8% of your purchase price minus land in after-tax cash-flow. Every property is different, as @Julio Gonzalez also mentioned. Cost segregation is rarely of no benefit. The exceptions are your purchase price was very low, you pay nothing in taxes, or are going to sell the property in a year or two. Even if you intend to pass the property on to your heirs, you can do cost segregation now and never have to pay any of it back in recapture taxes. AND, your heirs can do cost segregation on their new step-up in basis.  

Quote from @Gabriel Litvack:

Hi, I'm a real estate investor in New York and I'm looking to do cost segregation on my properties. 

does anyone know how can I do it myself and if is there any app that walk through the steps of the cost segregation study?

thank you

You may find the better cost segregation firms that have more experience and do engineering-based studies are not based in your state. Local is not always the best. Get quotes for quality engineering-based studies and decide by what they are offering you other than lowest price. Would you want to buy a car based on the lowest price? How about flying in a plane that was built by the lowest bidder? 

@Vicki X. I would do so real hard investigating...check out their current house, talk to neighbors, their credit rating and then think again. I am ok renting to owners of one dog, maybe 2 small dogs. I made one exception for my grandson's girl friend with two big dogs, German Shepard and a yellow Lab. They didn't pee or poo anywhere but the younger lab chewed the furniture and two of my rugs. The apartment is pretty dog-proof but for me, no more big dogs.  

Quote from @Eric Gorostiza:

Hi everyone,

Just closed on my first rental property (new construction), wondering what everyone's thoughts are on obtaining a cost segregation study for my property. I'm not 100% sure if I will qualify to be a real estate professional this year, but doing the study seems beneficial either way. What have you all done?

Thanks,

Eric

Hi Eric, You do not have to be a RE Professional to benefit from a cost segregation study. You can usually count on about 6-8% of your purchase price in after-tax cash-flow...taxes you do not have to pay. If you can't use all the benefits in year one of doing the study, you can always roll the benefits forward until they are exhausted. Your best option is an engineering-based study unless you don't mind spending time with auditors. ;-)  Estimates are at no cost and give you the information you need to decide how it can benefit your tax situation. Beware of companies that over-promise and under-deliver. Experience and audit protection are important. 

@Gabriel Litvack Cost segregation studies are not DIY projects unless you like spending time with IRS auditors. ;-)  The IRS' preferred methodology for a cost seg study is engineering-based. This requires someone experienced in engineering, construction and accounting. It also requires an on-site property review inside and outside by a professional. The difference in cost between a rule-of-thumb approach or "desk-top" study is simply not worth the risk and rarely gets you the same amount of tax benefits. 

@Jordan S. Do you realize that once you turn your residence into a rental, you are eligible for cost segregation which can get you about 6-8% of your original purchase price in additional cash-flow, taxes that you don't have to pay? It may be worth getting a no-cost pre-analysis to see if this option will give you the cash flow you need and allow you to keep your current lower interest rate. It may be worth checking out. Let me know if I can help or answer any questions.  

@Dimitra Manou This would be a great property for leveraging the benefits of cost segregation. You may have a minimum of $120K in taxes that you won't have to pay the first year. Sure beats depreciating over the 39 years required for a STR. There may be an investor out there that needs tax benefits AND an investment in a resort area.

@Account Closed Once you determine whether or not you can have a STR, you will have more decisions to make. If you can, you will be depreciating it over 39 years. If you change to a LTR or MTR, you will need your CPA/tax professional do a 3115 change of accounting form to switch it from STR to one of the other methods or vice versa. The biggest hurdle you need to overcome immediately is what can you do? As others have said, STR or MTR give you better cash-flow but may not be permitted.