Many landlords, especially those who own smaller properties, are unaware of the tax benefits available to them. Here is something that your CPA may never tell you about.
Real estate investors have a simple alternative. Most will take the option of depreciating the initial value of their residential rental building in equal amounts over the allowable 27.5 years or their office building over 39 years. In a $200,000 rented house, you would write off $7.272 per year in depreciation. Many CPAs will recommend that you do your depreciation this way, the easiest way.
Straight line depreciation may be the easiest way for your CPA to apply your depreciation, but is it the most advantageous way for you and your cash flow? Depending on your circumstance? Perhaps not.
Cost segregation is an IRS-defined method of accelerating your depreciation and, while it may be more complicated, it need not be difficult for you or your tax professional. By using engineering-based cost segregation, your property depreciation is applied by depreciating all of its component parts, many of which may be depreciated fully in 5, 7 or 15 year increments. By depreciating this “short life” property more quickly, you would receive an increased tax deduction now rather than waiting for 27.5 or 30 years to take its value off of your tax bill. With the 2017 Tax Cuts and Jobs Act, that 5, 7 and 15 year property can all be depreciated the very first year. That is called “Bonus Depreciation”
In essence, you are getting an interest free loan on your taxes from the US Government. Think of it this way: If I was going to give you $100,000, would you rather have it all now, or in 27.5 annual installments. Getting it right away is a “no-brainer” because that money, if invested back into the business or smart investments, will yield far more money long-term than having me babysit your money for you for many years.
If you:
- have property worth over $200,000,
- intend to keep the property over 3 years, and
- pay taxes
then I believe it would be in your best financial interest to, at least, investigate whether this is a good option for you. I will complete a no-cost, no-obligation analysis of your property and I will let you know if this strategy would be profitable for you. Your tax professional cannot, in most cases, provide you with the study necessary to maximize your depreciation. We will work with your CPA to make sure you get all the cash flow you are entitled to.
I can also advise you of some other tax strategies that may be beneficial to your cash flow and profitability. The 2014 IRS Repair Regulations, IRS Safe Harbors, and Building Systems Valuations may all be beneficial strategies to consider. I’ll help you navigate these strategies.
And don’t worry about the IRS. They have called this method of cost segregation the “certain method” of depreciation. We have completed over 20,000 studies in all 50 states, and have never triggered an audit. Should the IRS question your cost segregation during an audit, we will defend the study at no cost to you. We have never had a study rejected or changed.
Go to my web site at https://davidwiener.cssistudy.com for more information, or schedule a time to talk with me at https://calendly.com/david-wiener/talk.
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