Bonus Depreciation: Act Now! Defer Your Income! Buy a Car Wash!

Don’t wait! Find a property that will help you with bonus depreciation immediately! In 2017, the Trump Administration passed the Jobs and Tax Cut Act. While this contained many provisions, one of the key components was the Bonus Depreciation rule for real estate professionals. To classify as a real estate professional, the individual must meet the following criteria: (1) more than half of the personal services performed in all trades or businesses during the tax year were performed in real property trades or businesses in which the taxpayer materially participated; and (2) the taxpayer performed more than 750 hours of services during the tax year in real property trades or businesses in which he or she materially participated (Sec. 469(c)(7)(B)).

Traditionally, depreciation is allocated over 27.5 years for residential property and 39 years for commercial property. With bonus depreciation, a real estate professional can bonus depreciate upfront an asset with a useful life of 20 years or less. The rule is being phased out over the next several years and will allows for real estate professionals to deduct depreciation less 20% during the next five years.

Bonus Depreciation Phase Out

• 2022: 100%
• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%

If you have the ability and need to bonus depreciate a property, the most depreciable properties may include the following:

1. Car Wash Properties: Whether you are the car wash operator or the landlord of a triple net asset, a car wash offers tremendous depreciation upfront. It’s a recession proof business and is one of the fastest growing industries in the United States.
2. Mobile Home Parks: The key is determining whether the park consists of park owned homes or tenant owned homes. These factors play a big role in deciding the percentage of depreciation. The size of the property, roads and utilities are also critical in the depreciation calculation.
3. Multi-Family: A residential apartment building may offer a significant portion of depreciation in year 1. Depending on the number of Apartments, appliances in the building, parking spots and other depreciable items, this asset class may also offer significant bonus depreciation.
4. Single Family: A residential home can also offer bonus depreciation. If the asset has a swimming pool, large driveway and other specific criteria, it may allow for a larger upfront deduction.

To effectively determine the amount of bonus depreciation, please consult with a tax professional or cost segregation expert. These Professionals will help you determine the amount of depreciation you will be allowed to take with your property.

At Garay Real Estate, we can help you find a property that will provide you with a significant amount of potential tax savings via bonus depreciation. Please contact us below to setup a consultation.