Choices. They’re everywhere. In tax law, choices are called elections, and they can have consequences for your current return, as well as prior and future year returns.
You may not even think of some tax choices as elections, such as deciding to file jointly or separately, using the standard deduction instead of itemizing, or filing for an extension of time to submit your return.
Others are more recognizable. For example, when you have passive income from multiple rentals, you have the option to combine, or group, your properties into a single activity. Grouping makes it easier to meet the requirements necessary for you to deduct losses, and grouping could also potentially reduce your exposure to the new 3.8% federal surtax on net investment income.
Though grouping might seem to be an obvious choice, there’s also a drawback that’s present in many tax elections: it’s irrevocable. In the case of grouping, that means when you sell a property included in a group, you may not be able to immediately deduct unused losses from prior years.
Depreciation offers choices, too. Bonus depreciation, an election to write off up to 50% of the cost of an asset, is automatic — you claim it unless you opt out. On the other hand, you must elect to use Section 179, another accelerated depreciation method for writing off the total cost of assets in the year of purchase.
Contact us for details about available elections and how to make them. We’re here to help you select the right choices.