All Forum Posts by: Bonnie Griffin Kaake

Quote from @Heather Hall:

Hi Bonnie and thanks for the info!  So for 2022, bonus depreciation is taken for the main home and ONLY taken in 2022, correct?

Meaning, material participation is only critical for 2022?  

If the property manager put in more time than I did, in 2023, and I do not meet “material participation” it does not matter for purposes of bonus depreciation . . . ?

@Heather Hall I forgot to mention that I have known some CPAs who have used a short period of rental, as you had with your ADU, as income rather than depreciating the property. In that situation, you would not have a depreciation schedule for that time.

Your main house on the other hand is eligible for 100% Bonus depreciation. In addition, since you are materially participating in it's management more than anyone else, it is an active rather than passive investment. Win-Win!

@Heather Hall  In order to give you the best and most accurate answers, I would need to see the Federal Depreciation Schedule created by CPA/tax professional. Your CPA/tax professional has a copy and may have given you a copy with your last tax filing. What I can tell you follows:

1. The ADU was a LTR during those 90 days (1/4 or the year). If the purchase price that is assigned to the ADU is high enough, it could have had cost segregation and Bonus benefits on its own. The fact that you stopped renting it in Oct 2021, may have negated those benefits and your Federal Tax Depreciation Schedule will be telling.

2. There is no depreciation available while your family is living rent free in the ADU and/or you are living in the main house.

3. In June '22 when you move out of the main house and begin renovating the main house, the $75K in renovations will be added to y.our basis in the home or expensed depending on what was done and the cost involved.

4. With a cost segregation study, the main house is eligible for Bonus Depreciation on November 2022 at 100%. If you have filed your 2022 taxes with straight-line depreciation, you will need a 3115 481a Change of Accounting Form done to change from straight-line depreciation to accelerated depreciation.

With the Federal Depreciation Schedule and answers to a few questions, I can get you a no cost pretty accurate pre-analysis that you and your tax pro can review and decide if the benefits fit your specific tax situation. Let me know if you have additional questions and/or you would like a pre-analysis/estimate. 

@Frank Hardy You have some terrific options for tax benefits and extra cash flow that is ONLY available to you in the first year of purchase. This is in addition to cost segregation. We should talk. 

Quote from @Alex Jacobson:

I have a client who would like to buy a multi-family and STR property in Colorado and apply tax segregation rules before the end of year.

But they are claiming that in order to  that, the property must be vacant? Is that the case?

Thank you! 

Boulder REALTOR®

No, Alex, quite the opposite. The property must have occupancy or being advertised as available for occupancy to be able to do a cost segregation study. I am in Colorado and can help you close that deal as the buyer's hero. There are special considerations for STR that you and the buyer need to know. I would like to help. Chris Lopez is a broker in CO as well and is very knowledgeable about this.

@Frank Hardy Are you talking about a mixed use building that will be part your office? If so, you may have more tax benefits than you realize. If you are occupying part of the property as your residence, that could be of less benefit. Get quotes for your purchase and a no cost estimate for cost segregation. There are too many unanswered questions to give you more advice. 

@Jack Anderson  You could not have done a cost segregation study before you did the renovations because you did not appear to have had occupancy until mid-2022. The good news is that you will qualify for 100% Bonus Depreciation. Get a no-cost pre-analysis for a cost segregation study now. Then, you can decide how it will impact your personal tax situation. You are well within the viability for a study. I can get you a pre-analysis in a day or two or answer any of your questions. Let me know if I can be of service.  

@Nancy Bachety  A cost seg does not "only delay tax day". Cash Flow is the most valuable part of any business and getting the use of the cash that you don't have to leave with the Treasury Department is like getting a free loan from the government. It is about the time value of money. BTW, the structure of the building goes on to depreciate for the 27.5 or 39 years of ownership after the cost segregation study is completed. It is a rare investor that does not benefit with a cost segregation study.

Do you really think that carpet is worth the same in 5 years when you are going to sell as it was worth when you bought the property and did the study? It may only be worth scrap value. Cost seg is a no-brainer unless you are going to sell the property in a year or two, you don't pay taxes, or have purchased the property for less than $200K.

@Roger Pearce Be careful. The IRS will be looking at intent. If you do STR for a month in '23 and then try to change to LTR in '24, you will have to do a 3115 481a Change of Accounting form. The IRS may view this as you were simply trying to game the system to get the bonus in '23. It is also going to cost you more to get that 3115 form completed to change from 39 year depreciation to 27.5. It may be less brain damage and less costly to simply make it a long term rental for 2023.

Quote from @Mark H. Porter:

I’ve done quite a few costsegs and got me it has only made sense if the property is over $2M.

When you say "I've done quite a few costsegs" what do you mean? CSSI is the largest cost segregation company in the country and rarely does it not make sense. We do engineering-based studies at very competitive prices for properties with purchase prices as low as $200K with success. Maybe, you are trying to do these complex studies yourself or having your tax pro take a few items for you. If so, you are leaving a LOT of money on the table and likely incurring unnecessary risk of audit.