does Cost Segregation apply to Residential/Multifamily??

Question

I have been told by some CPA's that the cost segregation and bonus depreciation tax codes do NOT apply to Residential and that multifamily is Residential.  Trying to find out if multifamily can take advantage of cost segregation and bonus depreciation?  (or maybe are cost segregation and bonus depreciation two different things?  and if so do both apply to multifamily?).

1 - Next week I am closing on the purchase of a multifamily built in 2006.  Purchase price is $680,000.  Should I be doing something BEFORE the purchase closes in order to take advantage of cost seg and bonus depreciation?

2 - in 2018 bought multifamily built in 2000 for $1.2 million, put $750,000 into renovation since the purchase (most of which was spent in 2019).  So far I have done nothing regarding cost segregation or bonus depreciation...AM I LEAVING MONEY ON THE TABLE?

Thanks in advance for any advice!!

ASHLEY

Basit Siddiqi · Answer

@Ashley GarnerYou can do a cost segregtion analysis on a residential property(SFH and MFH).Your accountant is incorrect on this point and you may want to show around for another accountant.The next question you should ask yourself is whether or not you should do a cost-segregation analysis.While you will see many people mentioning to do it, it may not benefit everyone.

Lee Ripma · Answer

I agree with @Ari Lasky! I love doing cost segs and getting the bonus deprecation. You're going to be very pleasantly surprised at how much you'll get on that property you are about to buy. You'll likely benefit on your old property as well. I have a blog post on cost segs on smaller properties on my website. Website in signature, article under blogs.

Ari Lasky · Answer

@Yonah Weiss

good points as always! :-)

Yonah Weiss · Answer

@Ashley Garner As @Ari Lasky and @Lee Ripma have already pointed out, it most certainly applies to multifamily residential, and you are probably leaving money on the table. I am most concerned that if your CPA doesn't know that, what else are they messing up?

Feel free to DM me to discuss further. Most companies will provide an feasibility analysis to show you what your potential tax savings will be by doing a cost seg study, as well as what the difference would be versus how you are already straight-line depreciating.

Ari Lasky · Answer

Hi Ashley, The answer is yes you CAN do a cost segregation on a residential property. As long as it is an income producing property that is being depreciated, you can do a cost segregation study.

Regarding bonus depreciation: Bonus depreciation is relevant to certain assets placed in service at certain times. A cost segregation study is necessary in order to identify which assets are eligible.

1) You only have to do a CS study prior to filling your tax return. No need to worry about it now. Close the deal then give me a call :-)

2)It depends on the scope of work you did but most likely, yes, you are leaving money on the table. You can always do a look back study to recoup that depreciation. It’s a little more complicated but message me if you would like to discuss more at length.

does Cost Segregation apply to Residential/Multifamily??

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