Cost Segregation & Depreciation
If your goal is to reduce your personal tax bill you either need your spouse to qualify for REPS or you will need to utilize the Short-term Rental Strategy. We provide guidance on both.
1
Real Estate Professional Status
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51% of all paid services are in real estate
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750 hours a year working in real estate (15/week)
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500 of those 750 hours are spent managing your own properties
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At least 100 hours logged per property the year you are claiming accelerated depreciation against your active income (unless you file a grouping election)
2
Short Term Rental Strategy
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Average stay is less than 7 days
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Log a minimum of 100 hours of work
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No one person can work more hours than you
3
Cost Segregation Study
Even if you meet the requirements for the IRS to classify your rental business as active instead of passive you will still need a cost segregation study. Ever since the introduction of 100% Bonus Depreciation with the Tax Cuts and Jobs Act of 2017 there has been a proliferation of firms providing ever cheaper cost segregation studies. A quality study is fully engineered and includes a site visit. If someone is offering you a study that can be completed in less than two weeks for less than $2,000 it is not a quality study that is likely to hold up in the event of an IRS audit. Your CPA will likely have a preferred provider, but if not we can recommend a reputable firm.