All Forum Posts by: Bonnie Griffin Kaake

@Dave Meyer Done! I am looking forward to hearing more and participating. 

@Marie M. Have you considered an SBA lender? Since you own the business and the property, it may be an option. I am not a lender, I just work with a few. 

Even the American Institute of CPAs (AICPA) recommends that their CPAs get a cost segregation study done on properties over a purchase price of $750k. Today, it is also cost effective to do studies on smaller investments. I am with @Michael Plaks, just do it...if it makes sense. There are a few reasons not to do a cost seg study: 1. the purchase price on the property was less than $200k. 2. You don't pay any taxes now. 3. You intend to sell the property in 1-2 years. There are very few other unique reasons. You do need to ask a lot of questions. Companies offering cost segregation services are not all the same. 

For those new to the idea of cost segregation, it is like getting a free loan from the IRS. And, if and when you decide to sell the property and have to pay some of it back ("recapture") it is at a lower dollar value and, typically, at a lower tax rate. In the meantime, think "time value of money", you get the use of that money to leverage into another property, do needed renovations on an existing property, pay for your kids college tuition, or keep your business afloat until this pandemic goes away and you can take a needed vacation.

Depending on the type of property, the tangible property typically represents about 30% to 40% of the property's purchase price. We cannot depreciate land and the building's structure goes on to depreciate over the expected life of the property: 27.5 years for residential and 39 years for commercial. 

A good cost segregation study is engineering-based, the IRS' preferred methodology. A well done study requires someone knowledgeable in the fields of engineering, construction and tax law to do the study. During a study, your property is analyzed in detail and involves separating the tangible property from the structure of the building. Under current tax law and regulations, the tangible property can be depreciated up-front. The after-tax cash flow available to you is usually 6-10% of the purchase price of the property plus any repairs/renovations. And, don't forget that a study can be done on properties you purchased some time ago as well as new purchases and newly constructed properties. 

@Nick Barlow The tax and cash-flow benefits available NOW for commercial property and residential rentals outweighs any anticipated increase in the tax rates. When you can realize 6% to 10% of a property's purchase price in after-tax cash-flow now, the time value of money is golden. If you reinvest that money at an 8% return which should be a given in RE and most thriving businesses, it is well worth doing a cost segregation study on anything purchased for over $200k. Why let the IRS hold that money when you can make use of it now? The stock market is higher risk in my opinion and my sad experience. Leverage that real estate which you have more control over than the stock market. The big guys have the first shot at making money in the stock market.

@Ted Holmes That is the way to do it! 

I am also here in Denver and am a RE investor, commercial broker (inactive), and work with CPAs to maximize tax & cash flow for their investors. I am also open to meeting in person. I feel like a dog when I say this but “I have had all my shots.” 🤣

@Kaloa Devine This sounds like a good opportunity if you can get some or all owner financing. On the other hand, if you do cost segregation on your existing and new property, you would likely have little to no taxes to pay for a year or more. That increase in cash-flow could pay off any loan you might have to take out to secure the new property. And, if the new property is going to be your forever home to eventually be willed to your children, you will have no recapture owed by your estate upon death. We can talk if you need more information.

@Will Kenner It is not that the CPA/tax professional is giving incorrect information, it is that they are unaware of certain benefits available. When I give Continuing Education Classes (CPE) to CPAs/tax professionals, it is unusual if one out of ten is aware of the benefits of grouping in the first year for owner/occupants. Once it is missed, you can't go backwards to group. 

@Jonathan Hayek I like your second scenario better than the first. Still a bit of risk but also could be an opportunity if done well and you have the ability to carry it until you get a tenant. You may also have to invest in some tenant finish to get it done. Remember, that if you plan to hold this for at least 3 years, you will want to seriously consider a cost segregation study to reduce or eliminate your federal plus state taxes for a while by accelerating the depreciation. This would give you an additonal 6-10% of your purchase price in after-tax cash flow in the first year. 

@Wayne Brooks  In the thread above, you mentioned that rehab and fix-up money goes to your basis. That does not have to happen if you do the changes in any year other than the same year you buy the property. To be compliant with the Tangible Property Regulations (TPRs), a lot of this can be expensed. Also, under TPRs and by doing a cost segregation study, you can do a Partial Asset Disposition and write off as a loss the items you remove from the property that would be included in the original basis.