Cost Segregation Study

[Kelby Gowin]

I currently just purchased a short term rental this year. I was interested in performing a Cost Segregation Study for tax purposes. This is a single family home located in Fredericksburg, Texas and I was wondering if anyone that invests in the Austin area may know who could perform such study? Also, is there any cons to getting the study done? 

Any help would be much appreciated. 

[James Parrish]

@Kelby Gowin

Hi Kelby,

Understanding if a cost segregation study makes sense for your situation can be tricky. Luckily, most cost segregation professionals provide a free analysis that shows whether or not it's worth pursuing. In this analysis, we typically outline your potential tax benefit, project cost, and any limitations particular to your situation. Also, most cost segregation firms service clients all over the country, there are a few in this forum that would be happy to help.

[Kelby Gowin]

James,

I appreciate your response and glad to hear that. 

[Julio Gonzalez]

Congratulations on the new property! Fredericksburg is a great location with all of its' wineries. STRs have great potential tax benefits with a cost segregation study. As James mentioned, many cost seg companies work with clients across the nation and provide a free cost/benefit analysis quote for you to compare as well as decide if it's a beneficial strategy for you and your property.

[Allen M Miller]

Jumping on this thread as I have a question as well. Here's my situation. I bought a new primary and rented out my first one recently.(Nov-Dec) it's still in sole proprietorship though I'm in the process of setting up an LLC. Would I benefit from cost segregation this year? In my situation?

[Mike Bend]

@Allen M Miller

I’m very curious about CSS as well. Are they very expensive ?

[Michael Evans]

I thought it only applied to commercial property?

[Michael Evans]

I thought it only applied to commercial property?

[James Parrish]

@Allen M Miller

If you're currently renting out this property it can be cost-segregated. This is because now you have to depreciate this property over 27.5 half years, assuming that it's a residential rental. What a cost seg does is it reclassifies the assets of your property into shorter recovery periods (5 & 15 year), creating larger deductions in the short term. So long as you're renting out this property or your property was "ready" to be rented in 2022 you're good to go, whether or not you've set up an LLC will not affect your ability to use cost segregation. Feel free to DM me if you have any other questions

[Eliott Elias]

Madison Specs 

[James Parrish]

@Michael Evans A cost segregation study can be done for both residential and non-residential real estate.

[Kelby Gowin]

Thanks Julio, we live in Texas so me and my wife frequently head down to Fredericksburg every year. This is our first rental in the area, so we are waiting to how it produces. 
I’m glad to hear that cost seg guys will do an analysis to see if it’s beneficial for me or not. I hear it’s a great tool and definitely would like to see if it would be worth it. 

Thanks,

[John Morgan]

Just cost seg certain things. I do my own taxes on turbo tax and it’s easy to do. For example, most things get depreciated over 27.5 years. But you can accelerate some things over fewer years. For example, I just put in new floors on a rental which can be cost segregated over fewer years. So appliances, flooring, fences, driveways etc can be written off over 1,5, 7, 10 years etc. It’s easy to figure out. And if you use turbo tax, it remembers each year and calculates those items you cost segregated for future years. Same with your accountant. They’ll ask you what you paid for certain things. Then plug the numbers in so you can write off certain things quicker than over 27.5 years. I wouldn’t pay thousands for a cost segregation study unless you’re buying a big commercial property. Don’t do it for single family properties. It’ll take you 2 seconds to figure it out on your own. Then plug the numbers in. Or give the numbers to your accountant so they can plug them in.

[Basit Siddiqi]

@Kelby Gowin

Reach out to your accountant to see if they have any recommendations.

I normally recommend two different types of cost segregation companies

DIY Cost Segregation companies for residential properties below $1,000,000 in cost
I recommend Cost segregation companies that will stop by the property for residential properties above $1,000,000 in cost and any commercial asset(self storage, data center, shopping mall, mobile home park, etc)

Best of luck

[Michael Plaks]

@Kelby Gowin and @Allen M Miller

Don't rush it, gentlemen. Neither one of you is guaranteed to benefit from cost segregation. Maybe it will help you, and maybe it won't. If you wonder why so - here is one of the many posts discussing the potential complications:

https://www.biggerpockets.com/forums/51/topics/1075919-five-common-myths-of-cost-segregation-and-100-bonus-depreciation

The good news is that you have plenty of time to do it before your 2022 taxes are prepared. So enjoy the holidays and then reach out to your respective accountants (or find new ones) and have them evaluate your specific situations. If they endorse this strategy for you, then start searching for a provider like @Yonah Weiss or @Julio Gonzalez or maybe pursue a DIY option mentioned by @Basit Siddiqi.

[Julio Gonzalez]

@Michael Plaks Thanks for the mention!