Save these tax tips to save big this tax season.

Avoid tax compliance issues this year by keeping the same processes and procedures that worked as best practices for you. Gather support, respond to your CPA’s inquiries, and don’t delay just because the IRS and FTB granted relief to disaster victims. There are many nuances with relief this year; not all 2022 penalties will be abated for missed or late payments, only for the payments with deadlines within the relief period.

New Extension Due to California’s Winter Storms October 16, 2023, is the new filing and payment deadline for those living in the counties affected by the severe California winter storms. The October 16 extension date applies to tax payments related to both individuals and businesses, including extension payments, estimated tax payments, business tax payments, and more if the payment deadline falls within the relief period. You now have until October 16 to file, too; however, that does not mean you can request an extension for an additional six months.

You may be asking yourself, Am I eligible for this relief? You are if you show that your tax return address is in a disaster area—and the relief will be automatic.

So, which counties are announced under the disaster declaration?

It is faster to list the counties not eligible for relief: Imperial, Kern, Lassen, Modoc, Plumas, Shasta, and Sierra counties. Even if you are ineligible for relief because you live in one of the counties named above, your tax professional may be working from a disaster area that can provide you with relief eligibility. You may need to contact the IRS disaster hotline (1-866-562-5227) to request relief if going this route. The Franchise Tax Board (FTB) only asks that you substantiate and document your eligibility.

Now, let’s get into the tax tips that could help you with significant savings.

Cost Segregation Study

Driving through San Francisco, I often admire the large residential buildings and apartment complexes. What would it be like living in one that is tens of stories tall? Is the air fresher up there? What are the rental property owners depreciating? How are they allocating costs to the fixed-asset components that could be segregated to have different depreciable lives? I don’t know the answers to the first two, but the last question is accelerated depreciation.

Your prior tax accountant may have read the purchase statement and split the purchase costs between land and building for depreciation purposes. A cost segregation study will identify and segregate the personal property and qualified improvement property from real property, thus carving out a portion of the costs and changing its depreciable life from 39 or 27.5 years to 5 to 15 years. This results in portions of a fixed asset, say a building, to split a larger asset to smaller components to be able to claim bonus depreciation.

Although our firm does not perform cost segregation studies, we like to inform people of their options. This study is applicable to all industries that depreciate.

Ownership of Foreign Rental Properties

Do you ever think about selling your San Francisco rental property and investing in a foreign country? The grass may be greener, but we’ll inform you of some key tax and filing differences that may affect your decision.

Foreign rental properties must be depreciated under the Alternative Depreciation System (ADS) instead of the General Depreciation System (GDS). That means you will have to depreciate your foreign rental property over 30 or 40 years instead of the 27.5 years for domestic rental properties. 30 or 40 years of depreciable life is based on whether the property is a residential or non-residential rental property and the date the property was rented out to tenants.

Cliff Notes: Your depreciation expense to shelter rental income is spread out longer; thus, you will receive fewer immediate tax benefits.