A Beginner’s Guide to Cost Segregation Studies

In this episode of Tax Tuesday, Anderson advisors Barley Bowler, CPA, and Eliot Thomas, Esq., tackle listener questions covering essential tax strategies for real estate investors and business owners. They explain how LLCs holding investments should be taxed, breaking down the differences between disregarded entities, partnerships, and corporations. They walk through complex scenarios including calculating capital gains on homes with mixed personal and rental use, including non-conforming use periods and depreciation recapture. Barley and Eliot discuss strategic tax planning for cryptocurrency gains, maintaining disability benefits while generating passive income, and the mechanics of cost segregation studies for accelerating depreciation deductions. They also cover creative strategies like the daughter's stock trading scenario using the 0% capital gains bracket, finding passive income to offset accumulated passive losses, and using nonprofits for tax savings. Throughout the episode, they emphasize the importance of proper structure and timing to maximize deductions while staying compliant.

 

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Highlights/Topics:

 

• "Should my LLC holding investments file as a C or an S corporation or with my individual 1040?" - Disregarded LLC on personal return; corporations for active business only.
• "We are selling our personal home with acreage for considerable gain. How do I figure out which percentage of capital gains we will owe? Zero 15. 20. And how can we decrease the amount of capital gains we will owe?" - 0%, 15%, or 20% based on taxable income brackets after exclusions.
• "My daughter trades stocks and has low earned income. If she closes positions at a profit that were held over a year, the capital gains remain untaxed provided her net taxable income is below the threshold. Can she close in a profit and reopen the same position year after year? Can that be ongoing to avoid any tax?" - Yes, if total taxable income stays below threshold annually.
• "What is the best asset protection entity structure to be in that will save on taxes with gains in cryptocurrencies?" - Trading partnership with 90/10 split and C corporation for efficiency.
• "I'm a disabled nurse collecting social security disability. I'm considering an LLC as an asset holding company. How can I make it so the distribution and salary are passive so that I don't lose my benefits?" - Use disregarded LLC; dividends and capital gains typically don't affect disability.
• "Can you please explain a cost segregation study?" - Accelerates depreciation by reclassifying building components into shorter-life assets for upfront deductions.
• "I have a house I lived in for three years, rented for five years, moved back in two years ago. How does the rental depreciation and recapture gain work on my tax return if I sell it?" - Apply Section 121 exclusion; 50% non-conforming use affects gain calculations.
• "What types of passive income could I invest in to offset my accumulating passive losses?" - Limited partnership interests in businesses generating profits, not portfolio income like stocks.

"Would you please explain how nonprofits are used to save on taxes?" - Itemized charitable donations create deductions; funds must serve nonprofit purposes only.

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