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Squeeze out maximum deductions from your real estate
By default the IRS has you depreciating your personal real estate over more than 27 years and commercial at over 39. . . this means less cash in your pocket while you are actually using the property. Cost segregation breaks down the building into several components such as HVAC, electrical, plumbing etc. These new assets are granted 5-to-15 year tax lives. We typically see between 20% and 25% of the cost of the property re-allocated to these shorter tax lives; coupled with bonus depreciation and you can create a significant tax loss to utilize against your rental income or potentially wages, if you qualify.
For example, you purchased a single-family home with plans to have long term tenant for $300,000.
- Without Cost Segregation depreciation deduction would be about $11,000/year.
- With Cost Segregation you could accelerate about $70,000 of depreciation expenses this year. With a tax rate of 30% you could save up $21,000!
In order to use your rental loss against your wage or “active” income you either need rental income or qualify for the real estate professional (REPS) tax status or have a short-term rental (STR, Airbnb) whose average length of stay is 7 days or less and which you materially participate in. If you have multiple properties, we can make an aggregation election with the IRS to combine your time as one rental activity instead of trying to qualify on a per property basis.
BOSS Advisors regularly assists tax subscribers and business owners to obtain real estate professional status to reap the vast rewards of these cost segregation studies.