Maximize Your Tax Savings with Strategic Real Estate Investments
Learn how to utilize Sections 179 and 168(k) to significantly reduce your taxable income through NestVest's investment opportunities.
Understanding Section 179 and Section 168(k)
The Internal Revenue Code offers provisions like Section 179 and Section 168(k) (Bonus Depreciation) that allow investors to deduct the cost of qualifying property, such as NestVest Tiny Home units, thereby reducing taxable income.
Key Differences Between Section 179 and Bonus Depreciation
Eligible Assets:
- Section 179: Primarily for personal property assets used over 50% for business purposes.
- Bonus Depreciation (Section 168(k)): Applies to most assets with a useful life of 20 years or less, including movable structures like Tiny Home units.
Annual Deduction Limits:
- Section 179 (2024):
- Deduction limit: $1,220,000
- Investment cap: $3,050,000 (phases out dollar-for-dollar above this threshold)
- Requires sufficient business income.
- Bonus Depreciation (2024):
- Deduction: 60% of asset cost in the first year.
- No business income requirement—can be applied even in years with a business loss.
Flexibility and Timing:
- Section 179: Allows selection of deduction amounts for each asset, offering precise control over taxable income.
Bonus Depreciation: Must be applied uniformly to all assets within the same asset class.
Strategic Application for NestVest Investors
Investing in NestVest’s Tiny Home units allows you to leverage these tax provisions effectively:
- Immediate Tax Benefits: Utilize Section 179 for immediate expensing of the full purchase price, subject to limits.
- Enhanced Deductions: Apply Bonus Depreciation to deduct a significant percentage of the asset’s cost in the first year.
Optimized Cash Flow: Reduce tax liability, leading to improved cash flow and accelerated return on investment.
Example Scenario: Maximizing Tax Savings with a BoxHouse Investment
Investment Details:
- Purchase Price: $375,000
Tax Strategy:
- Section 179 Deduction: $375,000 (if within annual limits and business income allows)
- Bonus Depreciation: If Section 179 limits are reached, apply 60% Bonus Depreciation on remaining basis.
Outcome:
- Immediate Deduction: Up to $375,000, significantly lowering taxable income.
Tax Savings: Substantial reduction in tax liability for the year of purchase.
Combining Section 179 and Bonus Depreciation
To maximize tax benefits:
- Apply Section 179 First: Deduct up to the allowable limit based on your business income.
- Use Bonus Depreciation Next: Apply to any remaining asset basis not deducted under Section 179.
This strategy ensures optimal use of available deductions, enhancing overall tax savings.
Important Considerations
State Conformity
Business Income Limitations
Phase-Out Thresholds
Disclaimer: This material is for informational purposes only and does not constitute tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors before engaging in any transaction.
Consult with NestVest Tax Advisors
Navigating tax strategies can be complex. NestVest’s team of experts is here to help you:
- Assess Eligibility: Determine which deductions apply to your investment.
- Optimize Tax Benefits: Develop a personalized strategy to maximize your tax savings.
Ensure Compliance: Stay informed about current tax laws and regulations.
