Cost Segregation on Syndication to offset ordinary income

Developer · Chicago IL · Member since 2021 · 12 posts · 3 votes

I am in the process of investing in a multi family syndication. The management team plans to do a cost segregation study (closing on property in 2022). My question is can I use the accelerates/ bonus depreciation against my tax liability for ordinary income? I believe I can as long as I have real estate professional status which I believe I do as I work for a home builder.

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Quote from @Kevin Kittilsen:

See below, if you do not own the firm, your hours do not count.

From an online tax firm:
It is very common that an employee who works for a real estate brokerage firm or a real estate management firm also owns and operates rental properties. While they are spending significant time in a real estate trade or business, the hours spent as an employee will not count toward the “more than one-half of the total personal services” and the 750 hours requirements. Hours spent as an employee only will count toward this test if the employee owns more than 5% of the employer.

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Arn CenedellaPro Member
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
@Kevin Kittilsen
As always you need to consult your own professional tax advisor.
BP tax advice is worth what you pay for it - ie Nothing. 😀
You are on the right track by asking the question. Many don’t even ask the “right” question.
Deductions due to cost seq and bonus depreciation are considered PASSIVE losses and can only be used to offset other passive income or gains (W2 income is active not passive income) unless one qualifies as a real estate professional. Confirm with your CPA.
REP status is a complicated determination and in my opinion, working for a builder in and of itself does NOT qualify you. I believe the rules around REP status involve time involved managing your OWN real estate investments. As I understand it, if one has a full-time job, it is almost impossible to qualify as a REP due to the hours devoted to RE requirement.
Different tax advisors may offer different interpretations of the REP tax code.
In sum, my answer is: not sure you qualify as an REP - best to discuss issue in depth with an appropriate tax professional.
[email protected]650-575-6114
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
Quote from @Kevin Kittilsen:

I am in the process of investing in a multi family syndication. The management team plans to do a cost segregation study (closing on property in 2022). My question is can I use the accelerates/ bonus depreciation against my tax liability for ordinary income? I believe I can as long as I have real estate professional status which I believe I do as I work for a home builder.

See below, if you do not own the firm, your hours do not count.

From an online tax firm:
It is very common that an employee who works for a real estate brokerage firm or a real estate management firm also owns and operates rental properties. While they are spending significant time in a real estate trade or business, the hours spent as an employee will not count toward the “more than one-half of the total personal services” and the 750 hours requirements. Hours spent as an employee only will count toward this test if the employee owns more than 5% of the employer.
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Senate Eskridge
Investor · Twin Falls, ID · Member since 2015 · 200 posts · 117 votes
3y
The answer to your question as you have it worded is Yes, As a real estate professional you can use passive losses against ordinary income. but as @Arn Cenedella tax advice on BP is worth what you pay for. I am not sure the way you described it you would qualify for REPS.

The IRS put out a 12-page PDF about qualifying for REPS

I would consult a real estate specialist Tax advisor such as HALL CPA they also published an in-depth guide to the REPS status that is extremely detailed.
https://www.therealestatecpa.c...
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Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
3y
You can use the loss to offset capital gains from investments. As you describe your professional status, however, I would assume you don't qualify as a real estate professional. Possibly if you are or could become a sub-contractor, but consult with your CPA and attorney on that.
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Benjamin AakerPro Member
Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
3y
I agree with the others that you probably don't qualify as a RE professional. You still can benefit from the cost segregation, depending on your long-term plan. If you plan to sell the property within the next 15 years, the cost segregation can help you on your taxes as the losses carry forward to offset your passive gains. If you plan to do more real estate investing, then this can benefit you even though you can't offset your active income.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
3y
Talk to your CPA.

It depends - Can you group the activity with your rentals?
[email protected]917-280-8544
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