Two critical components that are often underestimated, tax planning and asset protection, can make the difference between short-term gains and lasting wealth.It's easy to get caught up in the excitement of acquisitions and high-stakes deals.

That means:All prior depreciation is wiped cleanYour depreciation and cost seg will be based on the new FMV, not what the decedent paidCost Seg Timing Depends on Renovation PlansIf you do cost seg immediately, the FMV will be broken down into components as of the inheritance date — land improvements, personal property (5-, 7-, 15-year assets), and the main structure.If you wait until after renovations, those capital improvements can be added to basis, and your CPA can run a combined cost seg study.

., 8 percent for commercial property) and possibly assign diminished value to or reduce the amount of gain allocated to short-lived assets (Section 1245 property) taxed at ordinary income tax rates by allocating more gain to the building's structural components (Section 1250 property) taxed at a more favorable tax rate (up to a maximum of 25 percent) upon sale.

building in Santa Cruz can be tough for logistics and environmental limitations from the local government, but its worth it once its done, such a beaituful area with the sea and redwood trees!

That means you can use the losses to offset your W-2 and 1099 income, even without qualifying as a real estate professional.Bonus Depreciation (Cost Seg + Furniture)If you do a cost segregation study, you can break the property into shorter-life components and depreciate those (plus the furniture/appliances) in year one. 

That means the lower the land value relative to the building and its components, the better.Example:•Property A: $500K total price•$100K land / $400K improvements → $400K depreciable•Property B: $500K total•$300K land / $200K improvements → Only $200K depreciableTip: Look for areas or property types where the improvement value is high relative to land — especially helpful in suburban or rural markets.Short-Term Rentals Open the Door to Bonus DepreciationIf your property qualifies as a short-term rental (STR) and you materially participate, you’re not bound by the traditional 27.5-year depreciation schedule.

Depending on your investment, there may be title issues, boundary issues, environmental issues, too many to mention. 

@Amber Stout It is important to note 100% bonus depreciation only applies to assets (building components and site work/improvements) with a class life of 20 years or less, not 27.5-, 31-, or 39-year assets (structural components) such as roofs, HVAC, fire protection and alarm, etc.

From there, I break it down by room or by component—flooring cost per sqft, average bedroom refresh cost, things like that—and come up with a rough estimate.That said, it’s always better to have a good spread going in.

Enhance Due Diligence: Scan zoning regulations, demographic data, and environmental reports faster.