Cost Segregation Strategies

[Andrew Flora]

Hello all,

As my portfolio grows I'm looking to become more efficient, especially in the realm of tax strategies.  I have heard of cost segregation and bonus depreciation and I have a base level understanding of what they are and how they work but I don't feel real confident on how to properly utilize them efficiently.

For example, I'm under contract on a 42 unit deal and a 40 unit deal both set to close about 2 months apart, these will be long term buy and hold properties for me.  Would I benefit from utilizing a cost segregation study to take bonus depreciation on these?  I'm confident that with the property improvements and regular depreciation I will be able to show a loss on paper in the first 2-3 years regardless.  

I would also like to know why or why not so hopefully I can learn something.

Thanks!

[Steve Morris]

Usually with standard depreciation + mortgage interest you can shelter plenty of income unless you're a cash buyer.

Most cases where people use cost segregation is to get as much depreciation (shelter) as possible in the first years.  Lot of syndications use it since they usually last for 7 years or so before selling.

However, remember if you don't do a 1031, you'll need to re-capture that depreciation with a 25% tax.