Bought Property in 2017, is it too late to start Cost Seg 2023?

Question

Hey all,I bought a property in 2017 and just started understanding what cost segregation is. My question is, is it already too late to start conducting cost segregation on my home for the tax year 2023?

Thank you.

Julio Gonzalez · Answer

@Phil Contreras Is this a personal property or a rental property? If it's a rental property, I'd recommend getting a free cost/benefit analysis from a cost segregation company to see if the tax benefits will outweigh the cost of the study.

Michael Plaks · Answer

We have to assume you are talking about a rental home you bought in 2017 and have been renting since. (If you're talking about your personal home - cost segregation does not apply.)

You can still do cost segregation today and apply it retroactively to 2017. Whether or not it is beneficial to you is case by case.

The process of applying it to the past years is not simple and should not be DIY-ed. This is on top of the cost of cost segregation itself.

Also, read this post for a better understanding of cost segregation: https://www.biggerpockets.com/...

Chris Picciurro · Answer

It is not too late. Check out 481a adjustments.

John Malone · Answer

@Phil Contreras nope but you’ll need to file a few extra forms

Joseph Palmiero · Answer

It is not too late for a cost seg. However, your 5 and 7 year property are already fully depreciated which will decrease the benefit.

Phil Contreras · Answer

@Julio Gonzalez it's a rental property. Thanks for the recommendation on the cost of study.

Ashish Acharya · Answer

If it benefits you, you can do the cost seg in 2023 or even 2022 if you amend it. You will have to file Form 3115. Not a DIY project.

Henry Clark · Answer

Talk with your cpa. With that said.

You’re dealing with 15 year lives or less. Depending on how you did year one, let’s say you have done 5 years of depreciation thru 2022 return. As mentioned above disregard all asset classes 7 years or earlier.

Keep in my cost seg is a cash timing benefit. Not a tax savings long term.

For discussion let’s say a cost study costs you $3,000. You will lose or spend this money.

Depending on asset type the building might be depreciated at 27.5 or 39 years. Let’s use 27.5 for discussion.

If your entire asset base excluding land is combined and depreciated at the 27.5 years. Then cost seg will benefit you in two ways.

1. Either faster depreciation say 5 years versus 27.5. Since you are already past 5 years you would get the majority of the depreciation expenses on your short term assets .

2. Or year one write off of the entire short term life categories.

Your tax preparer will have to file a change in accounting practice. Also this is the sun setting of the year one depreciation Will have to see if you get to do 100% or 80% for 2023.

Before you go through this I would dummy up some numbers to see if it is worth it to you. On a piece of paper break the asset into categories and discuss with your tax preparer.

Driveway and parking. $20,000.

Landscaping $5,000

Electric outside. $5,000

Sewer outside $5.000

Fencing &10,000

Personal property furniture etc $20,000

Hvac $10,000

Well xxxxx

Land xxxxx

Base house. Xxxx

Etc etc.jave them assign life’s to them. And walk you though coat aef impact. Then tax affect it. Is this cash worth it to you?

What is the cost basis of your asset? Forget depreciation.

Driving so the above are

Broad points.

Chris Picciurro · Answer

Not necessarily. What are some additional details?

Basit Siddiqi · Answer

Yes, you can do a cost segregation study on a property placed into service in a prior year.

Bought Property in 2017, is it too late to start Cost Seg 2023?

Bought Property in 2017, is it too late to start Cost Seg 2023?

Most Popular Reply

15 Replies