Cost Segregation Helps Real Estate Investors

6 Replies

A cost segregation study is an engineering study that allows you to depreciate a significant amount of your real estate purchase price up front by breaking down the building into structural components which are expensed over a 27.5 to 40.0 year method depending on property type and the study also determines the non-structural components of a building that can be immediately expensed under our current federal tax code. These engineering surveys are a tremendous tool to maximize accelerated depreciation of your building investment to preserve wealth!

If I buy a 1.4m 4plex and intend to keep the building indefinitely, is there any benefit to a cost seg study? I don't think so, if the math works out the same over time.. in fact, since I have little passive income on the front end it seems I would benefit more by depreciating over the 27.5 years. Thoughts?

Originally posted by @Jen Hunt :

If I buy a 1.4m 4plex and intend to keep the building indefinitely, is there any benefit to a cost seg study? I don't think so, if the math works out the same over time.. in fact, since I have little passive income on the front end it seems I would benefit more by depreciating over the 27.5 years. Thoughts?

The method can help, especially if you are a real estate professional, and can use the extra depreciation to offset non-passive income as well. It also is a great strategy if this is not the only property you intend to buy over the next 27.5 years, since you can use the depreciation from one property to offset income from others as well.

You asked "is there any benefit", the answer is it depends on your circumstances, but certainly it can be beneficial. It's best to speak with an expert and/or your CPA to see if it's best for your overall strategy.

 

Originally posted by @Yonah Weiss :
Originally posted by @Jen Hunt:

If I buy a 1.4m 4plex and intend to keep the building indefinitely, is there any benefit to a cost seg study? I don't think so, if the math works out the same over time.. in fact, since I have little passive income on the front end it seems I would benefit more by depreciating over the 27.5 years. Thoughts?

The method can help, especially if you are a real estate professional, and can use the extra depreciation to offset non-passive income as well. It also is a great strategy if this is not the only property you intend to buy over the next 27.5 years, since you can use the depreciation from one property to offset income from others as well.

You asked "is there any benefit", the answer is it depends on your circumstances, but certainly it can be beneficial. It's best to speak with an expert and/or your CPA to see if it's best for your overall strategy.

 

Thanks Yonah, 

Even though I'm a Realtor, I spend more time at my w2 job so I don't qualify as a RE Pro. so all of my income is active and I can only deduct 25k of passive losses for now. I expect that to be the case for the next 3-5 years so if a cost seg just front loads the same math rather than an even spread, I guess I'm best to play the slow game. I won't be in a position to purchase more property for a while but even if I did the gains would be far less than the losses with the depreciation and interest in my overpriced market. Perhaps I'll get brave and invest out of state some day, or the economy will finally shake our market and I can get some deals. :)

 

There is mention of Cost segregation in the title.
His profile and profile picture hint that he is in a professional who does cost segregation.

There is little value ad in the original post...seems like an advertisement that should be in the marketplace.