All Forum Posts by: Bonnie Griffin Kaake

@Dylan Whitcher and @Marco G. Not all cost segregation services are the same. You want to be sure you are covered in case of an audit. The IRS has increased their audits of depreciation schedules as of 2019. They are looking for ways to increase their income and poorly done depreciation schedules are targets. An engineering-based study is the IRS' preferred methodology and not something CPAs do themselves. The exceptions are the few big national accounting firms who have in-house engineers. There are strategies for leveraging the available tax benefits, including being in compliance with the Tangible Property Regulations (TPRs). Many are specific to a particular investor's situation. 

@April C. If the current HOA rules allow STR, even if they change those rules, you may get grandfathered in under the old rules if they don't disallow STR. Best option is to talk to an attorney before committing to the purchase.

@Eric Shiva Have you considered Greeley or Pueblo? The prices are more attractive although you may likely have to do some renovations to bring them up to rental quality. Greeley has the advantage of being a college town. 

@John Semioli If you bought in a covenant-controlled community with an HOA, be sure to read the bylaws. Many do not permit STR.

@Dylan Whitcher Great response...thank you! My focus is educating investors and their tax professionals without cost, about how to leverage the latest tax regulations in the investor's favor. When investing in commercial or residential rentals, the tax advantages right now have never been better. You can increase your cash-flow and reduce or eliminate your federal plus state taxes by expediting your depreciation. Traditionally, CPAs and tax professionals have used straight line depreciation over 27.5 or 39 years to depreciate income property in full. 

Instead, by expediting the depreciation (paper loss) under the current tax laws and regulations, you can enjoy an increase in after-tax cash-flow of about 6% to 10% of what you purchased the property for originally. This represents federal plus state taxes that you do not have to pay. The structure of the building goes on to be depreciated over the full 27.5 or 39 years. The simple way to explain this is that it is like getting an interest free loan from the IRS that you don't even have to pay back in full and what you do pay on sale in "recapture" is much less than the amount you had access to and had the opportunity to reinvest. Think time value of money...you win the lottery, do you want cash up-front or wait for dribbled cash over years and years?

If this is still sounding like another language, contact me. No obligation, no arm twisting, just information. If you don't pay taxes, are going to sell the property in a year or two, or paid less than $200k for the property, this strategy will not work for you. It is recommended by the American Institute of CPAs (AICPA).  

@Cathy Song Depending on the terms of your loan and how long you have owned the property there may be addiitonal options. You may be able to movein with a friend or relative for a while and pay them less than what you can rent out your unit for. Then, do a cost segregtion study on the property and greatly reduce or eliminate any state and federal taxes you would owe on the passive income generated on the rental. This tax relief can be significant...6% to 10% of your purchase price in after-tax cash-flow...taxes you do not have to pay. 

Good job Tyler! Nice lesson learned as well. You are on your way. 

@Will Kenner There are other reasons owners choose to do a sale-leaseback. Sometimes it is a result of ignorance and sometimes it is due to their CPA/tax professional’s lack of knowledge. An owner-occupant in the first year of buying their building can “group” the building with their business and make both “active”. By doing this, the excess paper losses created by an engineering-based cost segregation on the building can be used to offset business gains. This reduces taxes owed and gives the owner an influx of cash they would have spent on federal and state taxes. This is a specialty area of tax law.

@Gervon Thompson I was referring to accelerated depreciation, not "forced depreciation". When an investor purchases a property, their CPA or tax professional usually puts the property on what is referred to as "straightline" depreciation. That means the purchase price minus land is divided by either 27.5 years or 39 years and each year you get to take that much in depreciation as a "paper loss" each year. Under the latest tax regulations, by doing a cost segregation study and leveraging the tax benefits with accelerated depreciation, you can reduce your federal and state taxes owed and sometime eliminate them completely. As an example, if you were to purchase a $1 million property, by leveraging these tax benefits, there would be about $60k to $100k that you would not have to pay in taxes the year you do a cost segregation study. Or, you could use as little as 20% of that and roll the balance forward to reduce/eliminate taxes the following year(s).  

@Mark Futalan You have an excellent strategy of switching from STR to LTR as the market has changed. What percentage of the year are you doing STR versus LTR? Are you aware that depending on the percentage direction, the property may also change from a 39 year depreciation schedule to 27.5 years or viceversa? You don't want to trigger an audit.