Real estate is one of the best tax shelters out there, but many landlords don't take full advantage of the tax code to maximize their writeoffs and minimize their taxes.

Let's talk about:
what a Cost Segregation study is,
how you can use 100% bonus depreciation to write off 2030% of your asset in the first year of ownership
how to claim the passive loss from the 100% bonus depreciation
doing a minicost segregation study by yourself

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Transcript

Real estate is one of the best tax shelters out there, but many landlords don't know how to maximize their writeoffs and minimize their taxes. I'm Brandon Hall, CEO of The Real Estate CPA and today I'm going to give you four tips on how you can use cost segregation studies to boost your deductions. Before we get started, make sure that you subscribe to our YouTube channel, you'll be notified of any new content that we produce and if you like what you're hearing, check us out on our virtual workshop at www.therealestatecpa.com/virtualworkshop. So the first tip is that we should first understand what a cost segregation study is. A cost segregation study is the practice of allocating value to various components of your rental real estate. So instead of allocating 100% of the value to building and land, a cost segregation study allows us to allocate value between personal property, land improvements, building and land. That means when we're done with a cost segregation study, we're going to have value allocated to 5, 7, 15 and 27.5 year property rather than allocating all of our value only to 27.5 year property. The results of this allocation mean that we're going to be able to write components off over a faster time period. Writing things off over five years is going to result in higher depreciation and higher writeoffs rather than writing that same component off over 27 and a half years. If you've ever performed a cost segregation study, comment below with yes, if not, comment no. That's going to help me produce better content in the future. The second tip is that we can use 100% bonus depreciation for any component with a useful life of less than 20 years. So I just said we went through a cost segregation study to allocate value to components with a useful life of 5, 7, 15 and 27.5 years. The nice thing about bonus depreciation is that the value that we allocated to the five, seven and 15 year property can be 100% expensed in the first year, assuming that we do the cost segregation study in the first year of ownership. Generally, this bonus depreciation will result in writing off about 2030% of the purchase price of your real estate in the first year. And as you can see, this results in large passive losses that you may be able to claim on your personal tax returns. The third tip is that amount of passive losses that you can take on your personal tax returns depends on your modified adjusted gross income or if you're a real estate professional. If you're not a real estate professional, you're limited to taking $25,000 of passive losses if your modified adjusted gross income is below $100,000. If your modified adjusted gross income exceeds $150,000, that $25,000 passive loss allowance is completely phased out. That means that any passive losses that you have will be suspended until they can be used in the future. The exception to this rule is that if you qualify as a real estate professional and you materially participate in your rental real estate activities, you can claim an unlimited amount of passive losses against your other income. So in years that we run a cost segregation study and claim 100% bonus depreciation, we're going to maximize the benefit if we also qualify as real estate professionals. And the fourth tip is that you don't have to spend thousands and thousands of dollars on a cost segregation study. You can do a mini cost segregation study all by yourself. Now the results won't be near as good, but you can totally find the make and model number of parts and appliances, small things that are moveable from one property to the next. You can check those prices on online registers like eBay. Thanks for watching, make sure that you comment, like, subscribe and share this content with everybody that you know, I really appreciate it.