Most people want to keep as much of their hard-earned money as possible. This is especially true when you reach higher income levels and new tax brackets. I will discuss in this newsletter how you can pay less in taxes as a high-income earner, and it's completely legal whether you have a high-income W2 or you're a full-time real estate professional.

Cost Segregation & Bonus Depreciation

This commonly used strategic tax planning tool allows companies and individuals who have constructed, purchased, expanded, or remodeled any kind of Real Estate to increase Cash Flow by accelerating depreciation deductions and deferring Federal and State Income Taxes.

The Tax Cuts and Jobs Act (TCJA) expanded the deduction to 100% in the year qualified property is placed in service through 2022, with the amount dropping each subsequent year by 20% until bonus depreciation ends in 2027 unless congress acts to extend it.

2022 is the last year you will qualify for a 100% bonus depreciation, according to the TCJA, which may not sound like good news. However, there is still time to invest, although yesterday was the best time to get started. Invest in qualified properties, such as Apartment Buildings, to take advantage of this opportunity.

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Does This Benefit a W2 Employee?

Yes, because not only does the depreciation create losses to offset other ordinary income sources, it can impact a spouse's W-2 wages when you file married filing jointly (MFJ). You can deduct any bonus depreciation amount, and if a net operating loss is created through the deduction, you can carry that amount back to offset the previous year's income.

Cost Seg & Bonus Depreciation benefits you as a W2 employee when you make $200,000+ a year and are taxed in one of the highest tax brackets. For example, Surgeons, C-Suite Executives, and Dermatologists. By investing your money into an asset like an Apartment Building, you'll be able to depreciate that asset and offset some of your taxes by doing so.

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Cost Seg & Bonus Depreciation for a Full-Time Real Estate Professional

You can also benefit from cost segregation and bonus depreciation if you're a Realtor, Wholesaler, House Flipper, or even a Landlord. Those are all qualified as full-time real estate professionals. Most of these above-stated real estate professionals do not take advantage of cost segregation and bonus depreciation besides the landlord because they are so accustomed to making Active Income that they don't typically want to invest Passively because it's giving up control or profit in their eyes.

That is a short-sighted way to think about this because if you were to take the Active Income you're earning, flipping a house, or selling a home as a realtor or wholesaler and invest it as a passive investor; either in a Fund that purchases apartment buildings or syndication, you would be able to offset your annual income and pay less in capital gains tax. This can also be reviewed with your CPA, who can confirm this is valid.

The best part about this is that you're not only saving money on your tax bill but also gaining passive income, above-market returns, and protecting your money against inflation which means you're winning multiple times as a full-time real estate professional.

Summary

Cost Segregation and Bonus Depreciation benefit high-income W-2 employees and full-time real estate professionals when it comes to offsetting their annual income. If you're making $200,000+ a year, you should heavily consider taking advantage of this. The time to invest is now to take advantage of bonus depreciation!

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