Is it good idea to show Huge depreciation after cost segregation?

Question

Hello BP.

I wonder is it good idea to show huge depreciation = huge loss after cost segregation with 100% bonus depreciation.

My CPA recommend not taking all deprecation because He/she not comfortable with all the paper loss. He/she said it better to just take some items and spread out some to not create huge loss.

What is follow BP doing on their cost segregation? What is CPA in BP forum recommendation? I would love to hear what other bigger player do when they cost segregation their apartment building because that will for sure have huge depreciation?

Thank You

Michael Plaks · Answer

Sounds like you need a real estate specialist accountant. There're 20+ of us on this forum, and a few already replied to you on this thread.

Michael Plaks · Answer

@Tom Nguyen

Possibly "not comfortable" is not an accurate description of what your CPA said. Did he/she really say "not comfortable"? By the way, it's a strange way to use pronouns when you're referring to one particular person whom you know.

If your CPA really has no other explanation than not being comfortable, then you might want to upgrade to a more experienced CPA. But maybe there's a valid reason, such as taking into consideration your current situation and/or long-term tax planning.

Ana Klein · Answer

Tom, depreciation is a noncash expense and your lenders should add it back. We have clients that show over 100k in losses because of cost seg and they don't have any issues.

Yonah Weiss · Answer

Like the others mention, it is very common to have a large passive loss, when doing a cost seg. Perhaps the CPA is worried about it being a 'suspended' passive loss, that may be less beneficial, even though it carries forward, and can be used in the future years against passive income.

Bonnie Griffin Kaake · Answer

@Tom Nguyen Even the American Institute of CPAs (AICPA) recommends using cost segregation as well as the Journal of Accountancy. Cost segregation allows you to take large paper losses that can always be rolled forward to future years if you cannot use all of it in the current year. When I give continuing education classes to CPAs, I often find that only 1 out of 10 has enough knowledge of the subject to "feel comfortable" with it. That is why you need an expert in this area to help you and your tax professional get you the best tax benefits available.

BTW, if your properties are passive investments and you group them, the losses on one can be used against the gains on another. If the properties are short-term rentals, they may likely qualify as active investments and can offset your other active income. There are only a few reasons that cost seg is not a good idea.

Michael Plaks · Answer

There're plenty of case studies for everything, including losing weight, making millions, finding your perfect life partner and yes, cost segregation. None of these case studies are guaranteed to apply to you, because each person's circumstances are different.

You can request a free analysis from the cost segregation companies, however you then need to run it by your own accountant to verify that it does apply to you as presented. Read this thread: https://www.biggerpockets.com/...

It's not true that you need a multi-mil property for cost segregation. Sometimes it can be worthwhile on properties as small as $100k, and sometimes it's pointless on huge properties.

Basit Siddiqi · Answer

The whole point of a cost segregation is to get the bonus depreciation / increase in depreciation.

Greg O'Brien · Answer

@Tom Nguyen why are they not comfortable? If the deduction is valid and you meet the qualifications to take the loss then there is no issues here. This is very common for most CPAs to deal with

Julio Gonzalez · Answer

@Chin Siqing Zhang I've seen properties with a cost basis as low as $150k benefit from a cost segregation study. That's not to say that all properties benefit from a study, but it's always worth looking into. Most cost segregation companies offer a free cost/benefit analysis to determine if your property would be a good candidate for a cost segregation study.

Chin Siqing Zhang · Answer

Someone told me only multi-million properties are worth doing cost segregation.

Is that true?Are there some case studies that show roughly how this works and help to understand?

Thank you1

Is it good idea to show Huge depreciation after cost segregation?

Is it good idea to show Huge depreciation after cost segregation?

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