This would result in approximately $40,000 of depreciation on the $200,000 of 5-year property and $5,000 on the $100,000 of 15-year property, for a combined first-year deduction of about $45,000 on the reclassified assets. By comparison, those same assets would have generated roughly $10,909 in full-year annual depreciation if they remained part of the 27.5-year residential rental building basis. If bonus depreciation applies and the taxpayer does not elect out or choose a reduced allowance where permitted, some or all of the qualifying reclassified assets may be deductible in the first
year, subject to current tax law and eligibility. The 27.5-year building portion generally does not qualify for bonus depreciation. The remaining $700,000 building basis would continue to be depreciated over 27.5 years, producing approximately $25,455 in full-year annual depreciation. Actual first-year depreciation for the building depends on the month the property is placed in service. The exact tax savings depend on basis, asset mix, passive activity rules, tax bracket, financing, state rules, depreciation recapture, and whether the owner holds or sells the property.
WHEN A LOOK-BACK STUDY MAY HELP Cost Segregation for apartments is not limited to a brand-new purchase. If you bought or renovated an apartment property in a prior year, a look-back study may help identify missed depreciation. In many cases, the adjustment is made through an accounting method change rather than amending old returns. Learn more about a look-back cost segregation study before deciding whether it fits your situation.
PAGE 91
Powered by FlippingBook