[zipy124]

This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates. Mortages however are a special case since they are basically mandated to be low and safe by most governments in exchange for letting banks exist. Or in the US explicitily guaranteed through freddie mac and fannie may.

[CGMthrowaway]

You whiffed on the point (note the word "but" in parent comment). The depreciation strategies are where the real benefit is. PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place

The final phase is to exit via UPREIT for OP units rather than cash, with the REIT getting a step up in basis that can be depreciated again, while still not triggering any capital gains for you until you convert

[PopAlongKid]

>create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place

They're only deferring the tax on $70-80K, correct?

[BeetleB]

> They're only deferring the tax on $70-80K, correct?

Yes, if they sell normally. But usually capital gains tax is lower than that on the income so overall they're saving.

To be explicit: They use the $70-80K depreciation to offset their rental income (which often means they pay no tax on the income for that year and several years after). They'll pay it eventually when they sell, but at a (usually) lower tax rate.

There are tricks like 1031 exchange to avoid paying taxes when they sell, but I don't know how depreciation benefits factor in to those.

[gamblor956]

This is almost completely wrong.

First, depreciation on real property is about 27 years. 80k annual depreciation indicates a 2.2m purchase price.

Corporate capital gains don't get a special rate. They're taxed the same as regular corporate income. The 1031 like kind exchange is also very difficult to achieve as the bar is very high even under the Trump admin.

[BeetleB]

> First, depreciation on real property is about 27 years.

That's straight line depreciation. Look elsewhere in the thread and you'll see cost segregation and bonus depreciation. To give you an idea, I once invested $50K in a multifamily property and my depreciation for the first year was $18K. I never paid taxes on any of my income (but did pay more taxes when it was sold due to the lowered cost basis).

[JumpCrisscross]

> PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset

Source? That looks like a juicy target for state taxation…

[BeetleB]

Bonus Depreciation:

https://tax.thomsonreuters.com/en/glossary/bonus-depreciatio...

Cost Segregation:

https://warrenaverett.com/insights/what-is-cost-segregation/

I believe bonus depreciation is time limited (unless Congress renews it).

[gamblor956]

Residential rental property does not qualify for bonus depreciation.

[CGMthrowaway]

The building shell does not. But 5 7 and 15 year components (appliances, cabinets, carpet, site utilities, landscaping, fence, sidewalks, etc) are eligible, that is the point of cost seg

[roboror]

>This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates.

Are these companies going to banks and applying for a loan? I'd think they are privately backed and invested in.

[Havoc]

Privately backed isn't necessarily cheaper. In fact PE funds often have a big fat bank loan on their books because it pushes down the average cost