Should I do cost segregation or not on 2 str?

Question

Hi all, would appreciate some thoughts on whether to do cost segregation studies on both STR properties I have acquired in the past two years or just one? Some details

- RE pro tax status

- cost seg study of one house would yield $100k deduction or both $200k

- as re pro active income can be deducted but only have $60k active income so total tax paid $15k?

Cost seg one property would help for this year but worth doing both for 200k accelerated depreciation? Or should I keep one str on its current regular depreciation schedule and cost seg just the 2022 purchase. Benefit to accelerate both through cost seg this year?
Pros and cons would be appreciated!

Ashish Acharya · Answer

You can carryover the losses (becuase you have more losses than you need) as NOL rather than PAl if you do cost seg. It might be worth looking into especially when we have a 100% bonus in 2022.

Bonnie Griffin Kaake · Answer

@Richard Unsworth  If you anticipate that your income will significantly increase as well as your tax rate next year, it would be in your best interest to wait to do the studies. On the other hand, you could do one or both properties this year and roll forward any unused tax benefits each year until exhausted. Another consideration for you is that if the cost seg study is not done in the year of purchase, it will cost you more in following years because you will need a 3115 Change in Accounting Form done to change from straight-line depreciation to accelerated depreciation.

BTW, be aware that a cost seg study and bonuses are based on the year of purchase and occupancy as a rental, not the date of doing the study. Therefore, if you purchased with occupancy a rental property anytime from Sept. 2017 to Dec. 31, 2022 and did the study later, you would still qualify for 100% depreciation when filing your taxes. There were bonuses available prior to the 100% bonus and there are bonuses available on properties purchased after 2022 as well...just not 100%.

Julio Gonzalez · Answer

@Richard Unsworth Bonus depreciation is 100% in 2022 and drops to 80% in 2023. I think it's definitely worth considering the cost segregation on both properties. Have you discussed this with your CPA yet? I think one thing that is often overlooked with cost segregation studies is what you plan to do with the money you are saving in taxes. Are you planning to reinvest the tax savings so that you are creating a substantial ROI by getting the cost seg? If so, then a cost seg study can make a lot of sense and help you grow your portfolio exponentially. It's all about your strategies - both tax and investment.

Basit Siddiqi · Answer

This is something your accountant can answer for you given your current 2022 income and your projected rental incomes for 2022 and atleast 2023.If your total income is $60,000 and you are married, you have standard deduction wiping out $25,000 of it only leaving $35,000 taxable which is likely taxed at around 10% - 12%.I might not even waste some deductions to wipe out income taxed at a low tax rate.Best of luck in your decision.

Should I do cost segregation or not on 2 str?

Most Popular Reply