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Tax, SDIRAs & Cost Segregation

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Julio Gonzalez
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Cost Segregation Example on California Apartment

Julio Gonzalez
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#2 New Member Introductions Contributor
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  • West Palm Beach, FL
Posted Aug 1 2022, 18:06

If a Cost Segregation Study had not been performed on this $883,000 Apartment Complex located in Vista, California, it would have had first year depreciation of approximately $32,700. Thanks to the Cost Segregation Study, the property investors accelerated the depreciation that the first year depreciation was approximately $356,000.

The use of the accelerated depreciation strategy helps real estate investors to reduce the tax liability immediately which therefore increases their bottom line due to the offsetting of income. An additional benefit of a detailed engineering-based Cost Segregation Study is that it can increase potential insurance premium savings as well as provide support for the property tax appeals process. Additionally, it can help maximize renovations and improvements.

A Cost Segregation study is an IRS approved federal income tax tool that increases near term cash flow by utilizing shorter recovery periods for depreciation to accelerate return on investment. For newly constructed, purchased or renovated properties and also retroactive generally over the last 10 years, building components are properly classified into individual units of property and accurate recovery periods for computing depreciation deductions. The study identifies with forensic engineering detail the immediate Bonus Depreciation 5, 7 and 15-year personal property class lives qualifying portions of a building that are normally buried in 27.5 year residential or 39 year commercial categories.

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Replied Oct 13 2022, 15:01

Thanks so much for this information. We built an ADU on the 2nd level of our home in San Diego, and I captured all of the costs that went into the construction of the ADU. Would a cost seg study still be needed if I captured all of the costs during the construction of the ADU? Thanks so much!

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Julio Gonzalez
Pro Member
#2 New Member Introductions Contributor
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  • West Palm Beach, FL
1,246
Votes |
3,779
Posts
Julio Gonzalez
Pro Member
#2 New Member Introductions Contributor
  • Specialist
  • West Palm Beach, FL
Replied Nov 28 2022, 03:52

@Nicole Schertzer A cost segregation study isn't needed but it could absolutely be beneficial. Have you gotten a cost/benefit analysis quote on your property yet? It can help you determine if the tax benefits are worth the cost.

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Replied Feb 16 2024, 15:50
Quote from @Nicole Schertzer:

Thanks so much for this information. We built an ADU on the 2nd level of our home in San Diego, and I captured all of the costs that went into the construction of the ADU. Would a cost seg study still be needed if I captured all of the costs during the construction of the ADU? Thanks so much!


Hi Nicole, were you able to capitalize on bonus depreciation after a cost seg study? Curious because I'm considering building an ADU to my primary residence