Cost Segregation on 2 Separate Townhomes

Charlotte, North Carolina
Tax, SDIRAs & Cost Segregation
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Cost Segregation on 2 Separate Townhomes

Ross Alcorn
Member since 2022 · 14 posts · 27 votes

I'm looking for some advice around cost segregation.

I purchased a townhome in 2019 that has now been an LTR for two years. I purchased a separate townhome in 2021 that I am currently house hacking in and plan to turn into a rental property in the future. I purchased both of these homes as new construction. I plan to hold these properties another 5-10 years as of right now. My question is does it make sense to do two separate cost segregations for these town homes?

When tax planning with my CPA earlier this year I asked the question around what best practices are his real estate investor clients using for cost segregation and does it make sense for me to?

I was told it doesn't make sense usually to do a cost seg if the purchase price of a home isn't $1 million or above since they are fairly expensive. 

My goal with potentially doing a cost segregation is savings on taxes in the short term to acquire more properties over the next few years. 

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Frank A.
Rental Property Investor · Montgomery, AL · Member since 2017 · 50 posts · 14 votes
3y
Quote from @Ashish Acharya:

If your losses are not limited not or the losses are limited now but can be released in the future, you should be cost segs while you can still get 100% bonus depreciation in 2022.

But more info is needed to conclude.  


 I'm in the  same boat but didn't understand your response. Can you expand?

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    3y

    If your losses are not limited not or the losses are limited now but can be released in the future, you should be cost segs while you can still get 100% bonus depreciation in 2022.

    But more info is needed to conclude.  

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  • Frank A.
    Rental Property Investor · Montgomery, AL · Member since 2017 · 50 posts · 14 votes
    3y
    Quote from @Ashish Acharya:

    If your losses are not limited not or the losses are limited now but can be released in the future, you should be cost segs while you can still get 100% bonus depreciation in 2022.

    But more info is needed to conclude.  


     I'm in the  same boat but didn't understand your response. Can you expand?

    2Reply
  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    3y

    @Ross Alcorn We've performed cost segregation studies on properties with a purchase price as low as $150,000, so you definitely don't need a $1M price tag for a cost seg study to make sense. Since you're planning to hold them for more than two years, a cost seg study is definitely something you have the potential to benefit from. The 2019 LTR property should qualify for 100% bonus depreciation and then the one that you are house hacking, the entire home wouldn't qualify for a cost seg study since you're living in a portion of it, but the rented portion is eligible. Most cost seg study companies will provide you with a free cost/benefit analysis quote to get a better understanding as to if you will benefit from the study or not.

    561-253-6640
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  • Ross Alcorn
    OP
    Member since 2022 · 14 posts · 27 votes
    3y

    @Julio Gonzalez thank you for this valuable insight!

    2Reply
  • Sathiya Gane
    Investor · NC · Member since 2020 · 20 posts · 11 votes
    3y
    Quote from @Julio Gonzalez:

    @Ross Alcorn We've performed cost segregation studies on properties with a purchase price as low as $150,000, so you definitely don't need a $1M price tag for a cost seg study to make sense. Since you're planning to hold them for more than two years, a cost seg study is definitely something you have the potential to benefit from. The 2019 LTR property should qualify for 100% bonus depreciation and then the one that you are house hacking, the entire home wouldn't qualify for a cost seg study since you're living in a portion of it, but the rented portion is eligible. Most cost seg study companies will provide you with a free cost/benefit analysis quote to get a better understanding as to if you will benefit from the study or not.


     Agree with this statement. Online cost seg companies does it for $450 each .

    These companies provide you with free quote

    kindly do your due diligence before closing one .

    1Reply
  • Varinder KumarPro Member
    Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
    3y

    It may make sense to do two separate cost segregation studies for the two townhomes you own. Cost segregation is a tax planning tool that allows real estate investors to accelerate depreciation deductions and defer federal and state income taxes, potentially increasing cash flow and freeing up money for other investments or purchases. By identifying parts of a building that can depreciate over shorter amounts of time, investors can benefit from accelerated depreciation and potentially save money on taxes in the short term. Cost segregation can be used for investment properties, including rental homes and most second homes.It is recommended to consult with a CPA or cost segregation specialist to determine the best course of action for your specific situation.

    1Reply
  • Bonnie Griffin KaakePro Member
    Real Estate Consultant · Denver, CO · Member since 2021 · 666 posts · 389 votes
    3y
    Quote from @Ross Alcorn:

    I'm looking for some advice around cost segregation.

    I purchased a townhome in 2019 that has now been an LTR for two years. I purchased a separate townhome in 2021 that I am currently house hacking in and plan to turn into a rental property in the future. I purchased both of these homes as new construction. I plan to hold these properties another 5-10 years as of right now. My question is does it make sense to do two separate cost segregations for these town homes?

    When tax planning with my CPA earlier this year I asked the question around what best practices are his real estate investor clients using for cost segregation and does it make sense for me to?

    I was told it doesn't make sense usually to do a cost seg if the purchase price of a home isn't $1 million or above since they are fairly expensive. 

    My goal with potentially doing a cost segregation is savings on taxes in the short term to acquire more properties over the next few years. 

    Hi Ross, I teach CPA's continuing education classes. Too many over the years have admitted to not recommending cost segregation studies because they thought they cost too much, hate doing 3115s on older properties, or simply don't know how to discuss the advantages of cost segregation with their clients. Admittedly, it is so much easier for a tax professional to simply do straight-line depreciation. Even the American Institute of CPAs (AICPA) and the Journal of Accountancy recommend doing cost segregation studies. Quality Engineering-Based Cost Segregation Studies can be cost effective on properties with purchase prices of about $200K, including single family rental homes and condos anywhere in the country and even the US Territories. 

    As a result of this reluctance by tax professionals to recommend doing cost seg studies, many investors simply upgrade their CPAs/tax professionals to those who are more up-to-date and RE savvy and work with quality cost segregation companies and consultants in this RE niche to reduce your risk of audit.  A good RE/cost segregation consultant can maximize your tax benefits and increase your cash-flow to leverage what you have. 
    [email protected]303-475-4459
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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    The reasoning behind is answer is irrelevant. 

    I normally suggest clients to get a cost segregation study if it would reduce taxes in years 1-5.
    if it does reduce taxes, get it.
    If it doesn't reduce taxes, don't get it.

    I would say, getting a cost segregation study is helpful for about 25% of taxpayers, but when it does help, it is really helpful.

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