All Forum Posts by: Bonnie Griffin Kaake

@Anna Antipkina Michael Plaks is 100% correct. Your property goes on Schedule E. We are finding that about 90% of STR tax filing/depreciation schedules are being done incorrectly. This is low hanging fruit for the IRS. The paragraph below should help you and your tax professional, if you read it. I just finished a document for the state CPA society. They are posting it on their website because this has become a big and getting bigger issue with STR ownership increasing by 20% this year over last.

Schedule E is what your tax professional will generally use. htps://www.irs.gov/pub/irs-wd/2021510... (see pages 3 & 4). Schedule C is needed if the owner provides significant services for the occupants' convenience, other than the space rental and to maintain the property. Examples of these significant services (regular cleaning, changing linen, maid service, transportation, tours, etc.) and are described in Treas. Reg. Sec. 1.1402(a)-4(c)(2). See PDF link above.

Contact me if you or your CPA/tax professional want the full document. 

 Excellent question, Rich. Select carefully. There is a wide spectrum of qualifications. Our company only hires degreed individuals and then spends an enormous amount of time training them before they are allowed to work with clients. Ongoingly, we have twice weekly meetings to keep us up-to-date. Nevertheless, some of us are more qualified than others. You should always ask questions of whoever you are considering or choosing to work with. Some companies only see their reps as salespeople. We are consultants. I am happy to let my clients and the CPAs/tax professionals I work with know my background. We have a huge team of professionals at our home office that are always at the ready to answer any questions I cannot answer. The IRS regulations are very complex in this area and need specialists to interpret them. I teach CPAs how to leverage the tax benefits available for their clients.  

 Frankie, unfortunately, too many tax professionals are not up-to-date on the benefits available to investors in commercial properties and residential rentals. It is far easier for them to do straight-line depreciation at a time when not enough students are graduating with accounting degrees or going on to get their CPA designation. It is not to your advantage as an investor. You need a good cost segregation estimate and someone you trust to give you on-going tax expert tax advice that knows more about investment properties. 

@Rich Hupper There are some great CPAs on BP. At the same time, most good CPAs are so busy, they don't have time to add clients for strategy sessions. We are not graduating enough students from college with accounting degrees and going on to be CPAs to fill the pipeline. I am an inactive commercial RE broker, invest in commercial properties and for the last 7 years have been specifically trained to strategize with clients and their CPAs to maximize tax benefits for their RE investors and add cash-flow. 

The tax benefits available to investors in commercial and residential real estate are very complex. A good example is that the vast majority of depreciation schedules on STRs being done be CPAs/tax professionals are being done incorrectly right now. You may find you will do better with a tax strategist/consultant and a CPA/tax professional. We do work together very well. 

@Frankie Lotrec  You have not said how much you paid for the 4-unit. Nevertheless, if you haven't done a cost segregation study on the property, you may have some cash-flow that you simply have not tapped yet. We can usually give you about 6% to 8% of your purchase price in after-tax cash flow that you can leverage into another property. 

The same goes for another property that you might own and lease out. Leverage is the name of the game. Let me know if you have questions. 

@Jeanelle Ignacio Congratulations! That is an impressive journey. You are on the right track to being able to leave your W2 job with REI. If you haven't done cost segregation on any of your properties, you may have a way to accelerate your investments in real estate. It could mean 6-8% of your purchase price of a property in extra cash-flow. Estimates are at no cost.

Reaching out to the majority of CPAs will not likely help. We have found that more than 50% and closer to 90% of depreciation schedules by CPAs/tax professionals on STRs are not being done correctly. After seeing so many errors and hearing the same questions over and over from clients and their tax professionals, Our VP and I wrote a Q&A document to answer the most common questions. It is being posted on a website for the Colorado Society of CPAs this month. Let me know if you want a copy. 

@Phil Shelton  The IRS' recommended methodology is an engineering-based study. Yes, these do require a site review inside and outside. There are other methods of doing cost segregation studies and many cost seg companies use them because they cost less for the companies doing them. They are more likely to have errors that can get the attention of the IRS but if your only concern is how much you pay for the study, it is your choice. Most, if not all of the other less detailed studies don't offer audit defense at no cost with the study. 

Depending on what company your CPA is using, you may want to get a competitive estimate. Just remember that you need to know what you are getting for what you are paying. If someone asked me "what will a car cost" and I give them the lowest priced car to get their business, maybe a used car, that would be quite different than a new BMW or Lexus with all the bells and whistles. Know the questions to ask before agreeing to pay money for the study.  

@Bernard Reisz As a national professional cost segregation company for over 20 years, we never assign land values. We use the CPAs depreciation schedule numbers or when getting an estimate for the client where there has not been a federal depreciation schedule done, we will use the assessor's office's percentage of land versus total assessed value. 

Land values are serious business. Our actual studies rely on our partnerships with CPAs/tax professionals who confirm the numbers they will use before our studies are completed. I have seen land values vary for similar buildings from 6% of the purchase price to 99% of the purchase price. 

I have a mid-term rental and though the inquiries have slowed some, I am near hospitals so it has not impacted much. Here are some reasons people are looking for mid-term rentals: 

1. They are moving to my area and need time to find a place to buy. 2. Older women who are either divorced or widowed who are moving from another state to be near their kids and grandchildren. 3. With more people being able to work from remote locations, they will look for a mid-term rental near their preferred activity area...skiing, beach, mountains, etc. They stay for a season and go to another area. 4. Students working on their masters or doctorate and will be in an area for a while. Also med students on internships. 

These renters often stay for about 3 months. Others for a year. I give them a month-to-month lease and tell them I need a 30 day notice if they are leaving. Hope that helps.