Buying a building and looks like cost segregation would be a big benefit. Does anyone know some of the cons?
Thanks, Jag
Sounds like from your other posts that you should have enough “passive income” to offset, which should be no problem.
For others, where “passive activity loss limitation” is an issue, then doing all the extra work to create faster and bigger writeoffs becomes a big nothing, with writeoffs limited to $25K.
I don’t “componentize” myself, because in my area, with the high cost of land, just using a standard land building ratio of 80/20 which most CPA’s use here, where the 80 goes to land jacks up the depreciation tremendously. Based on my observations, in high appreciating areas, most of the value about 65% or more is actually in the land. No need to jack it up more with “componentizing”.
One benefit in using a CPA is he told me that I could writeoff stuff I buy, such as hot water tanks, furnaces for under $600.00. I followed a discussion on another board some time back, and found out it’s a pretty common practice, to writeoff rather than depreciate small stuff, with one gentlemen saying his CPA uses a limit of $1,000. Frankly, I never heard or read about it, or found it in Turbo Tax, so I’ve been depreciating items such as AC’s, washers, dryers, hot water tanks, prior to using the current CPA.
Prior CPA’s simply take my depreciation numbers. plug it in, assuming they even plugged it in correctly. Only one guy found my using a “179 election” improper for RE transactions, and reclassified it. I found expensing these items increases my writeoffs more quickly and efficiently. I might even escape recapture of these items entirely by expensing them.
One gentlemen mentioned that in an IRS audit, the auditor took no issue with his CPA’s $1,000 writeoff limit, but took issue with paint jobs that cost over $1,000 since paint jobs should last more than a year. I always expense all my paint jobs, as cleaning and maintenace, some of which runs well over $1,000.00, but at least in my area, I can find painters to do 2BR apartments for $500.00.
Next time if a contractor charges more than $1,000.00 for a paint job, I’ll have him break it down to several jobs, such as re-imbursement for paint (or I buy it), labor to paint, patching of holes, etc.
I am having a cost analysis done right now to see if the benefit of greater income would be worth it. The study/analysis is around $5,000 however the tax write off could be around $10,000 to $15,000 more a year yielding you about $5,000 to $7000 more income per year after taxes that’s $400 to $600 more per month - not a bad return for cost seg. That was my only reason for considering this path. Many people are starting to do this.
Just curious, and for the benefit of all, what costs are you breaking out, and how do you plan to determine the breakdown??
Just to mention, I did a major rehab once, and booked it in one lump sum using the life of real property. This includes carpeting, appliances, cabinets etc.
Then it turned most of the items were replaced one by one, within a few years, and had I componentize, I could have written off even the remaining cost of the items during replacement of each item.
I was new in landlording at the time, and didn’t realize how rough some tenants are with things.
Well I’ve hired a professional cost segregationalist. They will draft the floorplan, and breakdown all the personal items, such as, kitchen cabinets, flooring, appliances, light fixtures, doors, and not sure what else. They charge about $5,000 to $6,000 and the benefit is to have a excellerate the personal property write off as well as the usual, thus giving you a higher depreciation. They will be prepareing that for me next week, so they estimate the amount to be around $22,000 more write off a year which should equate to $4K to $6K more income per year. We will know pricisely after the close of escrow and a true analysis is done.
Jag