Over the last several weeks, I’ve spent time educating you on the tax benefits of apartment investing. We’ve spent time understanding depreciation, what a cost segregation study is, and how apartment investing gives you more tax benefits than other asset classes.
There is one more term you need to know! BONUS DEPRECIATION.
This is an accelerated form of depreciation that allows for you take advantage of 100% of the depreciation in the first year of ownership. This is a HUGE benefit!
The Tax Cuts and Jobs Act, enacted at the end of 2018, increased first-year bonus depreciation to 100%. It went into effect for any long-term assets placed in service after September 27, 2017.
The 100% bonus depreciation amount remains in effect from September 27, 2017 until January 1, 2023.
After that, first-year bonus depreciation goes down as follows:
- 80% for property placed in service after December 31, 2022 and before January 1, 2024.
- 60% for property placed in service after December 31, 2023 and before January 1, 2025.
- 40% for property placed in service after December 31, 2024 and before January 1, 2026.
- 20% for property placed in service after December 31, 2025 and before January 1, 2027.
This year is the last year that you can get 100% bonus depreciation in your first year of ownership.
This doesn’t mean that tax benefits associated with real estate are going away. You will still be able to take depreciation, it just won’t be upfront in that first year of ownership, it will be spread over the next several years.
Many people utilize tax loss harvesting as a strategy to reduce yearly taxes. For those investors that are interested in harvesting your tax losses, you should invest asap!