Wouldn’t you like to save thousands of dollars in taxes just because you purchased a new rental investment property? With recent tax law changes, now you can with 100% bonus depreciation. Within the new tax codes, there are now benefits to those of us who buy and hold rental investment properties. For example, a $350,000 rental property purchase could now have upwards of $35,000-$50,000 in first-year bonus depreciation, saving you thousands in taxes on not only that properties income but potentially on other properties you currently hold. The key to maximizing your deduction is to know how to define, classify, and proportionally value all the assets within the recent purchase.
Under Section 946 of the IRS code, How to Depreciate Property, there are various asset classes that are defined and the methods on how to calculate your cost basis. Reading the IRS code is beyond exciting and could put just about anyone to sleep. You may think to yourself that my accountant knows what to do so I don’t have to worry. Well, unfortunately, that is the wrong way to think. Accountants are trained to manage companies money and their debits and credits. The tax laws are so extensive that it’s naive to think that someone who manages corporate finances would know every tax law that exists and how to maximize every client’s taxes, especially in a crammed tax season. Accountants do a great job but they, unfortunately, are not building cost evaluators.
In order to maximize your deductions and minimize your taxes, I suggest you hire a cost segregation professional who will perform the valuation of assets and properly classify all the property that was recently purchased. Cost segregation professionals are typically engineers that understand building systems and study cost modeling to fully value all portions of your property. Do you have to, absolutely not? The IRS does not require you to hire any professionals to assist in doing your taxes, however, if growing your net worth by minimizing your expenses is your goal, I highly suggest it.
The 100% bonus depreciation is there for you to use. The only drawback is that it’s only available on assets purchased after September 27, 2017. Purchases before this date won’t qualify for the 100% bonus, however, you still have the ability to reclassify the personal property. So, if you have recently purchased or plan to purchase a new investment property, remember about 100% bonus depreciation and take advantage of this available
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tax savings benefit.