All Forum Posts by: Bonnie Griffin Kaake

@Alec Jacobs You said "My agent gave me first dibs". If you don't have a contract with that real estate agent, the agent works for the home seller, not you. This is especially true if the agent who represents the seller is at the same real estate agency as the agent you are working with. Yes, it can be an advantage to know when a new property comes on the market in a buyer's market. You are most likely paying that $20K extra because both agents work for the same company and have that early information. 

@Suganya Vinayakam There are many different opinions on the value of an ADU. Yes, they cost more to build and the ROI takes a long time. On the other hand, with the price of real estate today, it is difficult for our children to be able to afford their own homes. If the ADU is part of the parents' property, it can be a blessing. The adult child would not likely be able to afford to purchase in the neighborhood where the parents live.

For seniors, living in an ADU on their children's property sure beats a $7K/mo assisted living center and still gives them independence.

There is a lot of push-back coming from HOAs in today's real estate market regarding ADUs. This is for many reasons, some legitimate and others just excuses or racial profiling in a different form. Please don't shoot the messenger.

The severe housing shortage is increasing housing density from coast to coast. There are no easy solutions. What I am seeing is older residential units being purchased, eventually torn down and upscale apartments replacing them. In my opinion, it has already started, we are going to see single family residential zoning going away. Those who get on board earlier are going to be the winners of the future. I work with one client in CA, who is buying up small houses on bigger lots and adding ADUs quite successfully. 

Here is a simplified calculation that some may be interested in: ADU cost $200K, annual rental $21,600 ($1,800 per month) = almost 11% per year. Just try to get that interest rate from a bank.

My last post was for @Charlie Hardage, NOT
@Mark H. Porter

@Costin I. Just to be clear so you are using the right numbers as your basis. $100K purchase price minus $20K land value = $80K basis for depreciation. This is using a 80/20 ratio for building versus land if that is what the assessor's office lists for your property.

Of course, if you do any renovations on the property to get it ready for rent, those renovations may need to be capitalized (added to your basis) or might be expensed, depending on what is done. 

@Anx Carter Your safest bet is to have your CPA/tax professional determine the land value. They have to report that on the Federal Depreciation Schedule that is required from year to year on your property anyway. Let them take the risk of justifying their numbers to the IRS. This protects you if you are ever audited.

Your depreciation will actually start in the month and year it became "occupied" as a rental, based on the original purchase price, minus land, plus whatever capitalized items you did to prepare the property for rent.

@Steve Wright  You are making this more complex than you need to. Your basis in the property for which you can start depreciating once you put the property up for rent, is calculated like this:

What you paid for the property when you bought it, minus the land value, plus whatever capitalized improvements you made.

TurboTax is not going to cut it as you are moving forward. Get yourself a good real estate savvy CPA, EA or tax accountant. Depending on the size/value of your property, you may also want to consult a tax consultant regarding how to maximize your federal tax benefits and what can be expensed. You may be able to expense some items that are normally thought to need capitalization. Too many people try to save pennies with short-cuts (like using online tax programs) while they are walking over/not seeing hundreds and thousands of dollars they are missing or already missed. This is not just you but large investment companies as well. 

@Mike Arias  When you convert your property from your personal residence to a rental property, your basis is what you paid for the property originally plus renovations you do in preparing it for rental and minus the land value. Some of your renovations can be expenses and some may need to be capitalized. The ability to begin depreciation starts when the property is available for rent and is being advertised for rent. This is considered "occupied" just as it is when someone is actually paying you rent.

I hope that answers your question. 

@Mark H. Porter  Your request is not clear. If you are interested in how to decrease your Federal Taxes and increase your cash-flow, I can help with no-cost consulting or studies specific to your property(ies) whether they are small or large and anywhere in the US or US Territories. 

Hi AK, you will find a lot of information to guide you on our investing path. Once you have the building plans and projected budget, you can get a no-cost estimate on the tax benefits you are entitled to. This could give you a little wiggle room for finishing out the construction details when you know how much you will not have to pay in taxes until you sell or 1031 exchange into the next investment. If you will the property upon your death to your heirs, you will never have to pay those tax benefits back. You have a lot of support here and questions are always welcomed.

@Renata Dias What is your goal once you purchase the land? There are some incredible new tax benefits for ground-up construction and major rehab projects. This is not something that CPAs are aware of yet. Let me know if you want additional information.