So my team and I have literally been sitting around all day to dream up new strategies for our clients (who are all real estate investors).
Here's one that we've come up with.
For new acquisitions, if the rental will likely generate passive losses, allocate more basis to land and take less depreciation.
The new pass-through deduction is a freebie. But the deduction is only available if you have net taxable income after all expenses, including depreciation and amortization.
So when you buy the next property, allocate more basis to land. This will reduce your depreciation expense. But if you have a smart tax advisor, you can likely net out the lost depreciation expense with this new freebie deduction.
The tax benefit is realized on the sell-side. When you liquidate a rental, you pay depreciation recapture taxes on the depreciation you've taken over the life of the rental.
So if you report less depreciation over the hold period, you pay less recapture taxes in the end. But best of all, it didn't hurt you during the hold period because you utilized this new freebie deduction each year to bring your taxable income down to $0.
Note: this is not a relevant strategy if you purchase property that is likely to produce high amounts of net income after depreciation every year (NNN, Commerical, Large Apartments, Short-Term Rentals).
Second Note: more planning will be required for folks that want to utilize cost segregation. You don't want to crush it on the cost seg side and not be able to utilize this freebie deduction because you no longer have net income to report.
