All Forum Posts by: Joshua Awodele

Just found out that Connecticut disallows section 168k & section 179 bonus depreciation. For reference, see: https://portal.ct.gov/-/media/drs/publications/ocg/ocg5bonus...

Is there an exemption to this rule or can bonus depreciation from a cost segregation study be applied via a different IRC code? Or any other tax strategy?

Thank you BP Nation.

Unfortunately, some states like Connecticut and California do not allow bonus, QIP, and limit Section 179 deductions. At this time there's no other IRC section that can work around the state issue.

Thank you for your time Javed.

It's unfortunate, but ultimately, the federal deduction from the cost seg moves the needle a tiny bit. This is a good lesson for future tax planning.

0 Votes

Stamford, Connecticut

Quote from @Kory Reynolds:

Nearly every state disallows bonus depreciation. Many states have a limitation on 179 that is different from the Feds.

Some have really painful rules on dealing with that bonus depreciation addbacks.

You still benefit from the cost segregation study without the bonus depreciation - say your cost segregation study broke out $100k of 5 year property - now instead of spreading that out over 27.5 / 39 years, you get to take it over 5 years for your local state.

You still get the bonus depreciation amount on your Federal return, regardless of what the state does.

Thank you Kory. Appreciate the insight.

Reclassification definitely has it's merit for now and future deductions while allowing you to claim against federal and state taxes sidestepping the State's unfortunate approach to Bonus Depreciation. After doing the math, it looks like claiming section 168k now if only allowed against federal might be more favorable than reclassification.

0 Votes

Stamford, Connecticut

Quote from @Bill B.:

Minnesota is the same. Or close enough.

Thank you for the reply.

It's definitely a bummer!

0 Votes

Stamford, Connecticut

Quote from @Benjamin Weinhart:

No, this is common for states to not follow the federal guidelines when it comes to bonus depreciation, there is no exemption or other work-around. You will have a mismatch between depreciation allowed from the federal & state level for the entire life of the property which can create some added administrative burden for some.

Just in case there is confusion by the way, you are still allowed to take bonus depreciation under your federal return, just not for the state of Connecticut (among some others if others are reading. It's a case-by-case basis)

Thank you Benjamin. I wonder what the depreciation schedule for Connecticut will look like then. If they'll disallow you claiming a big chunk at once, in what way are you allowed to take depreciation for now and future years?

0 Votes

Stamford, Connecticut

Just found out that Connecticut disallows section 168k & section 179 bonus depreciation. For reference, see: https://portal.ct.gov/-/media/drs/publications/ocg/ocg5bonus...

Is there an exemption to this rule or can bonus depreciation from a cost segregation study be applied via a different IRC code? Or any other tax strategy?

Thank you BP Nation.

1 Vote

Stamford, Connecticut

Good afternoon BiggerPocket family,

Have any of you formed a Delaware Statutory Trust before? What does it cost for formation and ongoing maintenance?

1 Vote

Stamford, Connecticut

Quote from @Allen Duan:

We've had no issues collecting rent by credit card. We come from a STR background so it's very normal. We use Stripe for our direct bookings and don't charge a credit card fee to our guests. Our pricing strategy covers the fee as just another operating expense. For context, we manage 20 MTR doors in Los Angeles. Never had a credit card dispute issue, I believe due to our screening up front.

What is your vetting process for MTR? How do you streamline this process?

0 Votes

Quote from @Sean O'Keefe:

@Joshua Awodele you can't have both an MTR and STR in the same tax year and still qualify to offset no-passive income (W-2, 1099, etc.) as an STR. If you have an STR that becomes an MTR (e.g. not avg 7 days per stay, not avg 30 days per guest during year) in the middle of the tax year the IRS will consider you a LTR.

An LTR can still qualify to offset non-passive income but there are restrictions on annual income ($150,000) and loss limitations ($25,000) that you should be aware of especially if you are considering a cost segregation report to accelerate bonus depreciation.

*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

Thank you Sean for your reply.

After the first year as a STR, for the following years as an MTR, can one still follow the accelerated depreciation schedule from the year before?

1 Vote

Stamford, Connecticut

Hello Biggerpockets Family,

Need help with two things:

I need recommendations for a reputable firm that can perform a cost segregation for a STR investment in Fairfield County Connecticut.

Concerning the passive activity rules exemption requirements related to the STR Loophole, what are examples of "extraordinary personal services" I can incorporate within the business in hopes of converting from STR to MTR (midterm rental) while still qualifying for the STR loophole? This way, I can take bookings for greater than 30 days and still qualify for the tax incentive.

For reference:

https://wcginc.com/blog/short-term-rental-tax-loophole/#:~:t....

https://www.irs.gov/instructions/i8582

Thank you 🙏

3 Votes

Stamford, Connecticut

Thank you very much for your contributions: @Brent Coombs, @Jason Hsiao, & @Mike Wood.

I will give more context so that you may understand where I am coming from. Our target area in the east coast is riddled with over-valued properties with heavy property tax burden. The mill rate for Trumbull, Connecticut for instance is $35 per $1000 assessed value. Therefore a $500,000 complex will be taxed $17,500 ~ 1,500/month. This in mind along with potential repairs/maintenance in an over valued area makes a new construction more attractive.

I understand that in terms of initial cash flow, buying an existing property has the advantage, but in the long run (in a buy&hold strategy), I'm thinking a new construction with better unit cost efficacy, warranty on construction, reduced potential repairs for years, and in a place with a tax abatement area will be better.

Given that this will be my first construction, I'm here to gather wisdom from experienced professionals who have been in this situation and can offer advise that will help make this project a success. And what better place than BiggerPockets with a legion of real estate professionals.

Thanks

0 Votes

All Forum Posts by: Joshua Awodele

Joshua Awodele has started 5 posts and replied 12 times.

Post: Connecticut Section 168k Limitations

Post: Connecticut Section 168k Limitations

Post: Connecticut Section 168k Limitations

Post: Connecticut Section 168k Limitations

Post: Connecticut Section 168k Limitations

Post: Delaware Statutory Trust

Post: Tenants using Credit Cards to Pay for Rent

Post: Cost Segregation Providers in Connecticut

Post: Cost Segregation Providers in Connecticut

Post: Which is better: Buying vs Building