Several of today’s tax questions address bonus depreciation and when you can take it on single and multiple property groupings, including on short term rentals. Toby Mathis and Elliot Thomas, tax attorney, of Anderson Advisors, discuss the detailed specifics relating to several different tax scenarios involving bonus depreciation. They also discuss cost segregation and frontloading depreciation deductions for real estate assets into the early years of ownership. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

Taking the 5,7, or 15-year depreciation - You can only choose one, but you can spread them out over different years and different properties.

Bonus depreciation - equipment leasing company rents to a) a construction company and b) another company with no employees. Should they add a third? - No, adding would have the opposite effect. If you wanted to group a and b together, you probably could. This is active income and if you want to avoid self-employment tax, pay yourself a small salary.

A listener rents a single family property on flat lot that gets a lot of rain/water damage, can they deduct rain barrels/hardware? Yes, you can do it all in the first year, bonus depreciation, as it is not an “improvement” and it’s under $2500 per line item.

Can I group short term rental activities if one property has an out-of-state property manager? This falls under passive activity loss rules - a STR can be passive if you’re not participating. Each rental is a business, like a pizza parlor. This is a trader business. Make a statement for aggregation on your return.

Can I amend my 2021 taxes to do cost segregation? Yes you can, the deadline is Oct. 17th- send us how much you saved!

A US citizen gets gift of property in another country. Do I need to report to IRS? Typically no, and you pay no tax, but fill out a form if property value is over $100K and foreign. You have to list it on Form 3520.

Bonus depreciation on rental, if taken in first year of service, can I use any of depreciation for next year? It’s only the first year that you break out that property.

If a CPA does your taxes, and you get revised/audited, it’s ultimately only your responsibility at the end of the day.

Shout out to the staff for helping to answer questions in the middle of tax season

Resources:

Email us at Tax Tuesday

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