I just finished listening to a podcast that discussed a part of the tax bill that I haven't seen mentioned in quite the same context before.
https://www.realwealthnetwork.com/learn/big-tax-reform-benefits-real-estate-investors-cpa-ryan-schellhous/
(Discussion of Sec 179 starts ~ minute 13:30 and ends ~18:30)
http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf
(Change on pg. 735)
Section 179 of the tax code allows for accelerated depreciation of qualified real property used in a trade or business.
According to the CPA in the podcast referenced above, property with a =<15 year amortization schedule can now be written off in the same year as purchase, including property that is new to you (which is a change from the prior Code, where the property had to be brand new). This would mean that a real estate investor would be able to have a cost segregation done on their real estate purchase, then deduct 100% in the year of purchase, everything that is not the physical house or land (ie: driveway, landscaping, appliances). His estimate on the podcast was 30% of purchase price. Potential issues include the cost of the segregation study and tax filing complications.
Thoughts?
ps: Bat signal to @SeattleCPA :)
Okay, you lured me in... :-)
(I actually haven't in forum for a few days because I am swamped dealing with new tax law...) Some comments:
The depreciation works conceptually as you heard in podcast. But one thing I'd wonder is whether you end up pushing your income so low that you use the Sec. 179 depreciation to shelter income that would have been taxed very modestly anyway. Or income that would have been sheltered via the $24,000 standard deduction or your itemized deductions.
Cost segregation studies don't have to be *that* expensive. But if you go cheap, you get what you pay for. I have not (yet) had experience of defending a cheapo cost segregation study in an IRS examination, but, er, I don't think it would be a comfortable discussion to have with auditor.
Another thing about all this: I wonder if the people who'd most want to put a GIGANTIC deduction on their return are going to be ensnared in the passive loss limitation rules. I.e., to need the Sec. 179 thing to work in a big time way, you probably need a pretty high income. But if you have a pretty high income, you probably need to be a real estate professional to not get limited.
Final comment: I am not saying it's the best route to go... but using techniques like cost segregation to really hammer down your income *can* be a way to use real estate as a substitute for something like an IRA or 401(k).
Here's a blog post I did about this a while back:
Real Estate vs IRA and 401(k)
