The Quick Componentizer Report & Quick Componetizer excel worksheet

Componentize To Monetize

…Save Thousands Ever Year!

I am talking about componentizing – component depreciation (or cost segregation analysis). It is something that I have been using for years to double and triple property depreciation deductions and so have thousands of my students. Remember, depreciation is a non-cash paper deduction, yet it creates cash flow in your pocket via the tax savings. With componentizing it’s even better because you break out components, from the property cost, that allow you to use shorter recovery periods with the result of much larger deductions and savings. For example there are many items that can qualify for personal property and be rapidly written off over 5 years (double-accelerated) instead of slower building depreciation of 27-1/2 or 39 years straight-line (or 6 times faster than the building). There are land components that too can be rapidly written off over 15 years (accelerated) instead of 27-1/2 or 39 years straight-line (or 2 to 3 times faster than the building).

For example, on a $200,000 property regular depreciation would be $5,500; but with component depreciation it would be 12, 600. In a 30% tax bracket that’s a savings of $3,780 in your pocket with no cash out (and just for one year). With larger properties the savings will be even more substantial, dramatically increasing your cash flow (and wealth)

Moreover, you can also fully deduct the remaining basis of components that are gutted out and replaced. For example, if you replace existing property components with a remaining componentized cost basis of $30,000, you can claim the entire $30,000 as a full ordinary deduction. In a 30% bracket this puts $9,000 of savings in your pocket, yet you did not have to expend cash for the deduction!

Done properly, componentizing is perfectly legal with years of precedence and is not at all an IRS red flag. It can be used for all types of rental properties – residential rental, commercial, large and small (I started with a $30,000 property). If you missed it, you can go back and safely amend for the missed savings like found free money.