All Forum Posts by: Bonnie Griffin Kaake

Start by stopping the panic. Cost segregation was viable before Bonus Depreciation even existed. And, before 100% Bonus was available under the Tax Cuts and Jobs Act (TCJA) in 2017, the bonus had already dropped to 40%. So, what does it really mean when we say that Bonus is dropping to 80% in 2023 and by 20% more each year after? 

The 100% Bonus began with properties acquired and placed in service after September 17, 2017 and ends on December 31st, 2022. In 2023 it will drop to 80% which means that in a cost segregation study, 80% of all items that qualify for depreciation in 5, 7 and 15 years can be depreciated in the first year (just like the 100% Bonus did) and the next 20% can be accelerated to the appropriate category: 5, 7 or 15 years. That means those remaining items will be divided by 5, 7 or 15 years and each year you will take that portion in depreciation over and above your structural/capitalized depreciation. You are NOT losing it, you are simply going to take a little longer to depreciate the entire balance of what you can accelerate. You are still getting all of it. Keep in mind that the majority of what can be accelerated with bonus is usually in the 5 year category anyway. 

I hope that lets a few investors sleep better at night.  

@Matthew Kirkwold You definitely need another estimate but that is a low purchase price and when you consider the fact that you cannot deduct land, it may not be viable for cost seg. Another option would be considering a 1031 exchange into a higher priced property when you are ready. 

@Bob Foglia Short-term rentals and mid-term rentals require more hands-on management by you or a company you hire. The long term rental seems best in my opinion, especially if you are moving out-of-state. 

If it is unfurnished, you will have a tenant before you know it. Of course, the property is in a reasonably decent area of town. There may be a market for a family moving here from another state for a furnished rental if their intent is to look for a place to purchase before they move their furniture. You will also have to consider the furnished rentals offered by places like the Marriott and others as competition. Just remember that tenants rarely take as good care of the furniture as you would. Your furniture could be at risk. 

If you are even considering STR, be sure to check zoning laws and your HOA now and frequently. These laws and regulations are changing with frequency.

P.S. Don't forget the tax benefit and extra cash-flow you may likely be entitled to with cost segregation once it is listed for rent. It can be significant. 

@Mike Lambert  and  @James J Young  James, pay close attention to what Mike said above. Then, remember that there are those of us who don't like the all inclusive resorts. We don't drink a lot and may have food allergies or are vegan and can't justify the incredibly high cost associated with all inclusive resorts. In addition, My husband and I speak Spanish and love to practice while in Mexico. We deliberately look for non-all inclusive resorts. 

A couple words of caution, as Mike said, even if we frequent travelers to Mexico go for a condo or Airbnb type property, we want luxury. Therefore, you will likely need MUCH more money than you think you will need to purchase and upgrade those properties. 

Think this through well and crunch the numbers with a savvy investor in MX. I wish you great success! 

@Amy Konopka I must be missing something. I am an expert in cost segregation and the tax and cash-flow benefits available to investors in commercial and residential real estate. As an owner/operator, you should not only be able to take advantage of cost segregation but also as an active investor without REPs status. I am curious, something does not sound right here...maybe I am missing something. Then again, it is not the majority of CPAs/tax professionals that understand the complexities behind cost segregation or other benefits available to investors. 

@Bob Wilson  I hope you know that you can do cost segregation studies on rental homes as well. If you haven't done this, you are likely leaving a LOT of money on the table that could be reinvested in new properties. I am available if you have additional questions. You may not need as much in a commercial loan as you think you do.  

@Ashly Doran Crunch the numbers with a broker familiar with multi-family properties as a STR or Mid-term rental and the fact you will be renting one of the units. I agree with @Bjorn Ahlblad in that you need your own buyer's broker to negotiate in your best interest and help you with analyzing the deal. You will also want to take into consideration the fantastic tax benefits and extra cash-flow available for owning a commercial property. It will also be important to know when those leases expire and whether you will be renting them out for 30 days or more (requires depreciation over 27.5 years) or for shorter than 7 days or <30 days at a time which require a 39 year depreciation schedule.  

@Bob StevensHe said he purchased the building that he could use for his business at $600K and only had to pay $3K. With my experience, I have very rarely seen a deal like this not pay off. Especially, when he may not owe any Federal or State Tax as a result of the purchase and if his tax pro knew how to leverage the tax benefits available. Buildings are not cheap in Seattle, WA. I am an investor and have been a commercial investor and broker in years past. I know how difficult to get deals like this are and in a city as booming as Seattle, WA...is sure looks like a good deal to me. 

Quote from @Alan Fong:

I am a newbie investor/landlord and trying to understand the cost segregation aspect of owning. My understanding is this is the last year for 100% bonus depreciation (assume it relates to cost segregation?).

1) Is a cost segregation worth it for a 3BR/3BA townhouse/condo? I spent quite a lot of money on the renovation.

2) Does it make sense since I bought it 2 years ago and am renting it out now? Is it too late?

3) Any other tips/advices?

Thank you in advance

Yes, Alan, it is well worth getting a no-cost pre-analysis/estimate. My guess is that a lot of that renovation, if not all, can be depreciated up front. It does not matter when you do the study but sooner is always better than later for the ability to reinvest the additional cash-flow. 

Was the property occupied when you purchased it? Cost segregation can be done once the property is occupied. The bonus depreciation applies to the year it was occupied as well. Even if the property is a passive investment, if you can't use all the incredible benefits the first year you get the study done, you can roll those benefits forward from year to year until they are gone. You can also group your passive investments and use the losses from one to offset the gains from another. 

@George Ahearn  WOW! What an incredible opportunity you had and what a way to launch a real estate investment. Since you were or are an owner/occupant, did you take advantage of the opportunity to group your business with the building to take advantage of making the building investment active rather than passive? Sadly, too many owners and tax professionals miss this opportunity. If you had, you would have had a minimum of about $60K in depreciation that you could have taken against your business income. Not bad for a $3K investment!