Before an engagement
We review the closing statement or draw schedule and give you a written range before any engagement. If a study will not pay for itself, we say so.
A directional figure. The study replaces it with a measured one.
Estimated first-year tax deferral
$461,760
With study Straight line, 27.5 years
| Year | With study | Straight line |
|---|---|---|
| Year 1 | $1.39M | $189K |
| Year 2 | $144K | $189K |
| Year 3 | $144K | $189K |
| Year 4 | $144K | $189K |
| Year 5 | $144K | $189K |
Residential rental property depreciates over 27.5 years; the remaining structure is straight-lined over that life.
The percentage behind each property type is a planning assumption, not a result. The study replaces it. Estimates assume the property is placed in service this year and that passive activity limits do not apply.
A study is not always worth running. These are the conditions that stop one. Feasibility exists to find them before you have paid for anything.
The 5-, 7- and 15-year property a study creates is section 1245 property. On sale, the depreciation taken comes back as ordinary income. A short hold can hand back most of what the study moved forward, at a rate higher than the one that saved it.
Passive losses do not offset ordinary income. Section 469(c)(7) frees a qualifying real estate professional — more than half of personal services in real property trades or businesses, and more than 750 hours in the year. Short of that test, the deduction waits.
A study costs about the same whether the property is small or large. Below a certain basis the fee outruns the deferral. This is the first thing feasibility checks and the most common reason we decline one.
Land does not depreciate. A high land allocation leaves a thin depreciable basis, and the short-lived components are a share of what is left. Move the land slider on the estimator and watch the deferral fall.
A deduction needs income to sit against. An entity already at a loss, or an owner who pays no tax, gains nothing this year and carries the deduction forward at a discount to what it would have been worth.
A bare shell with little site work, no dedicated power and no finish carries a small share of short-lived assets. Warehouses sit at the bottom of every range for this reason, and a plain one can sit below it.
Every one of these is checked before an engagement, in writing. A study we would not run is a study we say no to.