Real estate tax strategy
Why Real Estate Investors Should Call Their CPA Before They Buy
CPA Ted Lanzaro explains how cost segregation, bonus depreciation and Section 179 reward investors who plan their tax moves before closing, renovating or selling.
Apartment Syndication Made Easy | 5-Year Income Projections with Ted Lanzaro
Video from Vinney (Smile) Chopra.
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When should real estate investors talk to their CPA about tax strategy?
Before they buy, renovate or sell. Ted Lanzaro says strategies such as disposal studies, cost segregation and Section 179 depreciation have to be set up in advance, and many moves cannot be made after December 31st. Regular contact through the year lets a CPA time deductions for the years when income is highest.
Most real estate investors meet their accountant once a year, after the decisions that shape their tax bill are already made. Ted Lanzaro, a CPA and real estate investor who founded Landmark CPA Group in Shelton, Connecticut, argues that this habit is the costliest mistake he sees. His firm works with investors on what he calls year-round tax planning.
In a conversation with Vinney Chopra on Apartment Syndication Made Easy, Lanzaro walked through how that planning plays out in residential assisted living homes, a niche Chopra has moved into after years of larger apartment deals. The same principles apply to short-term rentals, value-add houses and any property that carries a lot of furniture and equipment.
His message is practical. Depreciation is a tool, and like any tool it works best when it is used at the right moment. Buying, renovating, operating and eventually selling each open different options, and the investor who talks to a tax adviser before each step keeps choices that disappear once the paperwork is signed.
Key takeaways
- Furniture, appliances and supplies in a furnished property are often five-year or seven-year assets that qualify for bonus depreciation.
- A disposal study before a renovation can turn the items you tear out into an ordinary write-off, on top of new depreciation.
- An operating company with income can use Section 179 on assets such as a transport van, while the property owner uses bonus depreciation.
- A catch-up cost segregation study lets investors claim missed depreciation later, ideally in a high-income year.
1. Furnished properties create large early deductions
Lanzaro compares residential assisted living homes to short-term rentals. The owner fills the house with beds, kitchen equipment, plates, pots and supplies, and most of those items are five-year assets, with furniture on a seven-year schedule. Because they qualify for bonus depreciation, a large share of their cost can be deducted in the first year rather than spread over decades.
On a house bought for around 500,000 dollars, a cost segregation study can also separate tangible personal property and land improvements from the building itself. Add the furniture, fixtures and appliances needed to run the home, and the investor gets a strong first-year deduction, followed by a steady stream of depreciation over the next five to seven years.
He notes that in 2024 bonus depreciation stood at 60 percent, leaving the remaining 40 percent of the cost basis to be depreciated on the normal schedule. Lawn sprinkler systems count as land improvements, while security and fire alarm equipment typically falls into the five-year class. Smaller purchases may simply be expensed under the de minimis rules.
2. Plan the renovation before you close
One strategy many investors miss is the disposal study. Lanzaro advises buyers who plan to renovate to talk to their cost segregation firm before work starts and to film a walk-through of the property on closing day. Everything that is later removed can be valued, taken out of the purchase basis and written off as an ordinary loss.
The new work is then cost segregated as well, which he calls a double bang: depreciation on the improvements plus a disposition loss on what was pulled out. That makes value-add houses especially attractive, since converting a family home into an assisted living property often means moving walls, adding rooms and changing how the building is used.
Owners who separate the property from the care business gain another option. The real estate company takes bonus depreciation on the house and furniture, while the operating company, which earns service income, can use Section 179 on its own fixed assets. A van fitted out to take residents to doctor appointments can be fully deducted in the year it is bought.
3. Match deductions to your highest-income years
Section 179 comes with a condition. The business must have enough income to absorb the deduction, because it can reduce taxable income to zero but cannot create a loss. When a business is already running at a loss, bonus depreciation is the tool that can deepen it, and in some years a trade or business can use both together.
Timing matters on the real estate side too. Lanzaro's firm looks at roughly a five-year window with each client, estimating income from planned sales and other earnings. An investor who skipped a cost segregation study in a low-income year can later run a catch-up study, file the required change with the IRS and claim the missed depreciation when income is high.
He also warns business owners not to drain their companies to buy rental property without advice. A profitable owner who is not a real estate professional may not be able to deduct rental losses against ordinary income. Readers who want the full framework can turn to his book, Year-Round Tax Planning for Real Estate Investors: Build More Wealth. Pay Less Tax. Leave a Greater Legacy.
