Cost Segregation

[Britt Griscom]

I have 10 condos, each worth about 35k. I just bought them last year. I know a cost segregation study would be too expensive for such a small amount of property, but is it permissible for me to estimate the value of the components on my own?

[Vinil Ramchandran]

Britt,

My firm has evaluated some smaller properties (under $500k) in the past for cost segregation, and it generally does not cost justify moving forward, since the benefits are small, and typically the tax liability on the income is minimal if any. Keep in mind that only the "building basis" can be segregated and will benefit from accelerated depreciation. The "land basis" cannot be depreciated, so your depreciable portion will be lower than $350k.

We typically consider $1 million in building basis as a rule of thumb where it makes sense to evaluate the potential benefits. Of course, every owner's situation is unique and factors like the legal entity involved, purchase date, adequate passive income that can be offset with the cost segregation study, etc., will need to be considered.