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Published on: August 5 2023 by pipiads

Welcome to the Solar Energy Channel, where you'll get an honest inside look at all things solar. I'm Warren, and I'm Dale. In this video, we're going to talk about the upcoming changes to the bonus depreciation.

So, Dale, we've been fortunate enough for businesses to be able to take advantage of bonus depreciation for the last several years. Tell us what that looks like.

Yeah, so it basically allows you to expense the system. I mean, you can take all of the expense in year one for tax purposes, and most people will have two sets of books. They're gonna have a book depreciation method, and they're gonna have a tax depreciation method. But the tax depreciation method allows you to reduce your net income significantly if you can take all of that in the front end. And solar's been able to enjoy that. So we've had this 100% year one that we've been allowed to take. So solar fits under the five-year maker's classification for depreciation, right historically?

And so since the Tax Cuts and Jobs Act in 2017, businesses were able to take 100% of that depreciation in year one on the federal side. Right, and the state side would follow the maker's depreciation schedule. Correct, yeah. Starting this next year in 2023, this is gonna start to step down.

It does. Yep, tell us about that.

Yeah, so it's gonna step down by 20%. So basically what happens is in 2023, it's gonna be 80%. The following year, it's gonna be 60%. The following year, it's gonna be 40% down to 20%, and then it goes away. And so you get the 80% of the depreciation next year. The 20% would fall into the maker's schedule. So you still get it, you just don't get it all in year one.

And you know something else that's probably important to mention here for solar, Warren, is that the tax credit amount affects the basis for depreciation.

Yes, so 50% of the tax credit amount reduces the basis for depreciation. The tax credit this next year could go significantly higher than even 30%.

Right, so that's all gonna affect the depreciation numbers going forward. So the basis for depreciation is half of the tax credits. If you have a $100,000 system, you can only take half of that, or $15,000 cannot be depreciated. So your basis would be the $85,000, correct, for the tax credit. And as that ITC potentially increases going into next year, that's gonna reduce the basis of the depreciation.

Right, the rules haven't changed. The Investment or the Inflation Reduction Act (IRA Act) is the big one that changed everything with the tax credit, didn't touch depreciation. So if you have a 50% ITC, you take half of that, it's 25%. You're gonna reduce your $100 basis by 25 points. You're gonna be at 75%. Sure, so you're getting a higher ITC but lowering the amount that you can depreciate. Which is a win. You want the higher ITC. Absolutely. Take it any day of the week.

So we're gonna continue to see a step down, 20% a year, for the next several years. One thing to keep in mind is that we're not tax advisors. If you're making an investment decision, please consult your professional advisors, legal and accounting, when you make this decision because there's a lot of flexibility in the decisions between how to use the ITC and the depreciation. You're gonna decide how to take those. So consult your tax advisors for that.

Thanks for watching! Hope you found this valuable. If you'd like to take a deeper dive into depreciation or the Inflation Reduction Act, we'll have links to those videos in the description below.

How Depreciation for Solar Energy Works

- In this video, Charles Fox and Warren Miller discuss how depreciation works when purchasing a solar project.

- They explain that while homeowners cannot take advantage of depreciation, it is a great benefit for businesses or farms investing in solar.

Depreciation Benefits:

- Businesses and farms can depreciate a solar system just like any other machinery they purchase.

- This allows for double tax savings, in addition to the federal tax credit for going solar.

- Depreciation can be done over a five-year schedule, with the option for bonus depreciation in year one.

Example Calculation:

- For example, if a business invests $100,000 in a solar array, they would receive a $26,000 federal tax credit.

- However, they can only depreciate half of the tax credit amount, which would be $13,000.

- The business's tax basis for the system would then be $87,000, and their actual tax savings would depend on their individual tax bracket.

Benefits of Depreciation:

- Depreciation lowers taxable income, resulting in paying less taxes on the depreciated portion.

- In addition to the tax credit, businesses can save an additional $25,000 to $30,000 through depreciation.

- Most businesses can expect to get 50-60% of their money back in year one through depreciation.

Solar as a Tax-saving Investment:

- Solar is a great investment for saving money on taxes, especially for businesses.

- By choosing solar over other equipment, businesses can potentially get both investments with the same amount of money.

- The combination of the federal tax credit and depreciation allows for the majority of capital to be recouped in year one or the early years.

- Investing in solar projects offers the benefits of both the federal tax credit and depreciation.

- Businesses and farms can save significant amounts of money on taxes by taking advantage of these incentives.

- Considering solar as an investment can allow for cost-saving opportunities and the potential to invest in additional equipment.

Real Estate Depreciation Explained

Hey guys, this is Justin from Breaking the Calm, and in today's video, we're gonna talk about depreciation in real estate. So if you're trying to understand how depreciation actually works in real estate investing and what the details of depreciation are, definitely stick around for this video.

Now, if you're new here on this channel, we talk about real estate investing careers and real estate deal analysis and financial modeling. So if you haven't already, make sure to subscribe to the channel and hit the notification bell to be notified every time we release a new video.

Now, real estate is one of the most tax advantaged investment vehicles out there, and that is for good reason. So governments tend to structure tax codes to incentivize certain behaviors, and private real estate ownership is one of those behaviors that they want to incentivize. And depreciation is a huge part of that and allows investors to take advantage of some serious tax benefits in real estate investing. So by the end of this video, you'll know what depreciation is, what the different kinds are, and how you can apply it to your next real estate deal.

So let's start by first defining what depreciation actually is. So depreciation is defined by the IRS as a capital expense that is the mechanism for recovering your costs in an income producing property and must be taken over the expected life of the property. Now, the way this works in practice is sometimes referred to as a phantom expense, meaning that even though you won't actually pay cash out of pocket in order to pay for this expense, at the end of the year, you're going to be able to deduct depreciation expense from your total taxable income.

Now, the way this is structured for many real estate investors, especially if they put debt on the property, oftentimes, depreciation expense can shield any sort of taxable income that you may otherwise have generated from a real estate investment.

So with that all said, what are the details of depreciation and how does this actually work? Well, the first thing to know as a real estate investor is you're only able to depreciate the improvements on the land of the property that you own. So over time, a building and its contents may depreciate. There may be wear and tear on that building and its contents and the improvements on the land. But the land isn't going to depreciate over time, and oftentimes, that land is actually going to appreciate. So you can only take depreciation expense based on the value allocated to the improvements on that land.

So now that you know what to depreciate, how do you know the appropriate amount that you need to depreciate each and every year? Well, for commercial real estate, so anything outside of multifamily properties, the general recovery period is 39 years. So essentially what this means is you'll take 1/39th, or about 2.6 percent, of the value of the improvements and add that as a depreciation expense on your property every year.

Now, for residential rental properties, so anything from 1 to 4 units and also 5 and more units, that's going to be depreciated over a 27.5-year schedule. So since there may often be more wear and tear on a residential property, you're able to depreciate about 3.6 percent of the improvements on that land every year.

Now, all of this assumes that you use straight-line depreciation, which applies that same depreciation expense every single year. But there are two main ways that this is going to be modified. And the first way is through a cost segregation analysis. So when you buy a piece of income-producing property, you're not just purchasing the building and the land, but you're also buying improvements to the land and contents within that building. So as far as improvements to the land, this may be things like fencing, carports, lighting, or other equipment that may be on that land. And inside the building, you might be buying things like appliances, window coverings, floor coverings, and even things like the wiring of the building.

So while it may take 39 or 27.5 years to depreciate the actual building structure, land improvements can be depreciated over a shorter time window of 15 years, and building contents can generally be depreciated over a 5 to 7-year timeframe. Now, what this means for real estate investors is that they're able to benefit from a much bigger depreciation deduction in the first few years of ownership. And oftentimes, if you only plan to own a property for 5 or 7 years, this can be a huge tax benefit for a real estate investor.

Now, to do this, you'll need to do what's called a cost segregation study, and as part of that, you'll need to hire a team of CPAs and engineers. But oftentimes, the tax savings from doing this can offset the cost completely.

Now, the second thing that can change this is the new bonus depreciation rule that was enacted through the Tax Cuts and Jobs Act of 2017. And what this does is it essentially allows investors to depreciate up to 100 percent of qualifying real property expenditures in the first year of ownership. Now, these qualifying real property expenditures include anything with a useful life of under 20 years. So those land improvements that we talked about with a 15-year lifespan and the building contents that we talked about with a 5 to 7-year lifespan can now be depreciated 100 percent in that first year.

Now, if this sounds too good to be true, it is. And here's why: when you go to sell a property, you're going to have to pay what's called depreciation recapture tax. And the current tax rate for depreciation recapture is 25 percent, meaning that all the depreciation that you took during your entire ownership period, you'll have to pay 25 percent of that back in taxes when you go to sell the deal. That said, you may be able to defer this through a 1031 exchange, but it's still something to be aware of when you're taking depreciation expenses to make sure that you know what you're getting yourself into on the back end.

So at the end of the day, depreciation can be a huge tax benefit for real estate investors, and with the right team of accountants and engineers on your side, depreciation can be a huge benefit to you as a real estate investor.

Now, if you want to learn more about how depreciation is actually going to affect your real estate cash flows, check out my course, Commercial Real Estate Investing 101. We'll go over all about after-tax cash flow analysis and how to actually run that in a commercial real estate deal. And if you want to go deeper into all of this and get access to all of my courses, all of my models, and some additional one-on-one support, make sure to check out Break into CRA Academy. I'll link that in the description as well.

So thanks so much for watching. If you like this video and want to see more content like this, make sure to hit that like button, subscribe to the channel, and share this with anyone else you might find this helpful. Thanks so much for watching, and I'll see you in the next video.

How Depreciation Works for a Commercial Solar Project

Welcome to Going Solar with Pivot Energy, where we cover all things solar energy, including commercial solar and its financial incentives. In this article, we will be discussing one of the popular incentives for commercial solar - solar depreciation. We will explain how depreciation works for solar installations and how businesses can start reaping its benefits.

Financial Incentives for Commercial Solar:

1. Federal Investment Tax Credit (ITC):

- Monetized based on a percentage of the total investment in a solar project.

- Lowers business's federal tax liability by the value of the tax credit.

- Currently set at 26% for the remainder of 2022 and will step down to 22% in 2023.

2. State-Level Benefits:

- California has fruitful net metering policies.

- Illinois offers financial incentives for companies to produce solar energy.

Solar Depreciation:

- Depreciation represents the declining value of an asset over time.

- Businesses can write off solar panels as an annual expense on their taxes.

- Depreciation can be done in addition to claiming the Federal ITC.

Accelerated Depreciation (Modified Accelerated Cost Recovery System or MACRS):

- Asset value reduces at a faster rate early on.

- Depreciate the total cost of solar installation from taxes for five years.

- Creates tax losses in the early years, reducing taxable income and taxes paid.

- Increases the project's profitability.

Example:

- Assuming a solar project costs $1,000,000 and starts in 2022.

- Claim 26% ($260,000) through the ITC, reducing the project value to $740,000 net.

- Depreciable basis is reduced by half the ITC rate (13%), allowing depreciation of $182,700.

- Bonus Depreciation allows businesses to claim 100% of depreciable value in the first year.

Benefits:

- The net cost of the system is reduced.

- Initial expense is buffered by tax benefits.

- If unable to claim the Federal Tax Credit, 100% depreciation in the first year is possible.

Working with Pivot Energy:

- Pivot Energy can assist with commercial solar projects.

- Experienced in guiding clients through the financing process.

- It is advisable to consult with an accountant or tax advisor regarding the ITC and depreciation.

- Solar depreciation is a valuable financial incentive for commercial solar.

- By understanding the available incentives and consulting with professionals, businesses can take advantage of solar energy and its benefits.

- Contact Pivot Energy for assistance with commercial solar projects and to learn more about financial incentives.

What is Rental Property Depreciation? | Investing for Beginners

What is depreciation for real estate investing? Let's dive in!

- Depreciation is an important reason for investing in real estate

- It allows us to keep more money in our pockets come tax time

Definition of Depreciation:

- Reduction in the value of an asset over time due to wear and tear

- Government recognizes that things fall apart

Depreciation in Real Estate:

- Rental property doesn't lose value like stocks

- Over the long term, property value doesn't go down to zero

- Federal government believes a property will deteriorate in 27.5 years

Tax Benefits of Depreciation:

- Every year for 27.5 years, you can claim the depreciation value on your taxes

- Example: $50,000 property divided by 27.5 years = $1,818 depreciation value per year

- This depreciation value reduces your overall tax burden

- You can offset rental income with the depreciation value

Limitations of Depreciation:

- Land value cannot be depreciated

- Rental real estate is better than owning raw land for passive income

Advanced Strategy: Cost Segregation:

- Involves hiring a proper accountant to do a cost segregation

- Allows for depreciation of specific parts of the property at different rates

- Only a licensed accountant can do a cost segregation

- Worth considering if you own multiple properties

- Depreciation is a powerful tool to keep more money in your pocket

- Discuss cost segregation with your accountant for advanced strategies

- Take action and become a real estate investor

Must KNOWS before buying a Ferrari California (T) | Depreciation analysis and Buying Guide

What's up YouTube and welcome to a new video! So last year, I made a video titled Why Now is the Best Time to Buy a Ferrari California. In that video, I talked about how the prices of Californias were low and the future depreciation was minimal. But in the past year, many sports and supercars have gone up in value. So in this video, I will show you if the Ferrari California is also experiencing a price increase.

Before we dive into the price change, let's take a look at the current market. Currently, there are 133 Californias for sale, with a median price of $125,000. The cheapest car starts at $77,500, but it doesn't have a clean title. Cars with a clean title start at around $80,000, but these cars have relatively high mileage. On the higher end, prices can go up to $189,000, but for around $160,000, you can get a relatively fresh example.

Now, let's compare the normal California to the California T. The T is the latest version and has a redesigned exterior and a new engine. As expected, the prices of the T are higher. The normal California has a median price of $110,000, while the T has a median price of $155,000. So, you would need to pay a premium of $45,000 to get a California T. Whether that's worth it or not is up to you.

Now, let's look at the price change over the past year. The aggregated numbers show that prices went up by $4,000, or 3.3%. This increase is statistically confirmed, meaning it's unlikely due to chance. The price increase is seen across the market, from the bottom end to the top end of the price distribution.

One possible explanation for this price increase could be a change in mileage. Most Californias were driven around 400 miles in the past year, causing the median mileage to increase. So, both the price and the mileage went up.

Now, let's see if this price increase is driven by the California market or the California T market. From a model year perspective, the prices of the first-generation Californias increased by $10,000. This increase is statistically confirmed, but it's important to note that the market composition has changed. The cars currently for sale have lower median mileage compared to a year ago.

When it comes to depreciation, both the depreciation per year and per thousand miles are similar to last year. A California currently loses $1,000 per thousand miles driven, which is consistent with last year's numbers.

Now, let's focus on the California T market. The prices of the T increased by $5,800 on average, with a small decrease for model year 2015. This decrease is caused by a change in the market composition. The depreciation per year for the T is higher than that of the California, sitting at 11.2 thousand dollars or 6.8% per year.

The depreciation per thousand miles for the T is $1,500 or 0.9%, which is the same as last year. This confirms that the complete market shifted up.

In summary, the prices of both the California and the California T have increased in the past year. The T saw a slightly smaller increase, mainly due to differences in mileage. The depreciation per year and per thousand miles remained consistent with last year's numbers.

So, if you're thinking of buying a California right now, keep in mind that you might be getting less value for your money compared to a year ago.

Real Estate Write Off: Residential & Commercial Property Depreciation [Section 179 & 168] Form 4562

Hey there! I hope you're doing well. I want to talk to you about depreciation. It's a big issue that I cover in my seminars. I'll give you a link to check out my other seminars, but for now, let's dive into the topic.

Depreciation is something that offers a lot of opportunities to take advantage of tax laws. There are different ways to go about it, such as using Section 179, code section 168 (bonus depreciation), or regular depreciation.

With Section 179, you can immediately write off assets in your business. However, it has certain exclusions, particularly related to real estate. The dollar limitation for 2022 is $1,080,000. If you put more than $2,700,000 worth of assets into play in 2022, you start losing the ability to take advantage of Section 179. In 2023, the limit is $1,160,000.

For vehicles over 6,000 pounds GVWR, the maximum you can use for Section 179 is $27,000 in 2022 and $28,900 in 2023. However, it's important to note that if the business usage drops below 50%, you'll have to recapture the depreciation.

If you have a vehicle, truck, or SUV over 6,000 pounds GVWR, it's better to use code section 168, which is bonus depreciation. In 2022, it's 100%, but it starts decreasing in subsequent years.

Now, let's talk about depreciation related to real estate. There are different rules for residential and commercial properties. For residential properties, you can depreciate the structure, including the roof, HVAC system, security system, and alarm system, over 27.5 years. Land cannot be depreciated.

Land improvements, such as sidewalks, driveways, and parking lots, can be depreciated over 15 years. Flooring, carpet, built-ins, fixtures, and lighting can also be depreciated, but they are subject to a class life.

It's important to note that real estate is not considered a trader business by default, so you cannot use Section 179 on these assets. However, if you're a real estate professional, you may be able to take advantage of it.

That's a brief overview of depreciation. If you want more detailed information, check out my seminars. I hope you found this information valuable. Let me know if you have any questions!

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