Depreciation, repairs versus improvements, the passive loss rules and entity structure for owners who hold and rent.
Owning rentals is simple until the return is filed. Depreciation defaults to 27.5 years. A new roof is capitalized when part of it could have been written off. Losses are suspended as passive because nobody looked at the hours. And the properties sit in a single LLC, or in none, with the liability that implies.
The planning is mostly about what the code already allows. A cost segregation study accelerates depreciation on buildings you own now. The repair regulations, partial asset dispositions and the de minimis election decide what is expensed. The passive rules can be met through Real Estate Professional Status, the short-term rental exception or offsetting passive income. Entity structure decides liability, lending and how a sale is taxed.
We review the portfolio door by door, the last three returns and how the owners spend their time, then write a plan that sequences studies, improvements and any sale so each year is deliberate.
What we typically see: Every building on 27.5-year straight-line. A roof capitalized in full. Losses suspended year after year. Properties held in one LLC or in a personal name.
Each one is modeled against your numbers and written into the blueprint with the documentation it needs.
The roof was capitalized in full and the old one was still being depreciated. Writing off what we tore out was worth more than the repair.
Sometimes, particularly on higher-basis properties and short-term rentals. The study cost is weighed against the depreciation it accelerates before we recommend one.
Qualify for Real Estate Professional Status if the hours are there, run a short-term rental with material participation, or generate passive income to absorb them. The plan shows which fits.
It depends on the lender, the state and the liability profile. The plan looks at structure alongside the tax picture rather than defaulting to one entity per door.
An election that lets you expense items below a per-invoice threshold instead of depreciating them. It has to be made on the return each year.
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