Can I Cost Segregate if I don't have the Real Estate Professional Status?

Question

Hey all,

I've been reading a bunch of books about cost segregation (tax free wealth by Tom Wheelright) and there is this one question that I can't find the answer too.

Can I cost segregate my house for depreciation if I don't have the real estate professtional status?

Basiclaly, can I conduct cost segregation as a regular landlord person on my properties? or am I only allowed the standard depreciation of 27 years?

Ashish Acharya · Answer

Yes, you can, but your losses will be limited. If you have other passive activities, or if you plan to convert your future non-passive activities to passive ones, it would be beneficial to do it right now even if your losses are limited.

Basit Siddiqi · Answer

Yes, you can have a cost segregation completed on any rental property.The cost segregation's job is to identify what you purchased - Whether it be building, land and other items eligible for bonus depreciation.Whether the added depreciation will help you will depend on other factors.

Chris Picciurro · Answer

Absolutely. Even triggering passive activity losses (PAL) isn't terrible if you think tax rates will go up in the future. Tax free rental income is nice!

Tiphany Weeks · Answer

You can absolutely still have the study completed. I just assisted one of my clients with going through the process with a multi-family property that he purchased last year. One thing that I would recommend you looking into is how your are structured (LLC, S-Corp, C-Corp) because in order to take full advantage for my client he needed to restructure one of his businesses from a C-corp to and S-corp so that the taxes flowed over to his personal return to maximize the credit.

Bonnie Griffin Kaake · Answer

@Phil Contreras As others have said, yes, you can do cost segregation on your rental properties. Since every property is different, you will want estimates on each. A property can be active, which means you can take the losses against other active income, even a W2 or business income if you are the owner/occupant (think Dentist, manufacturer, car dealership, restaurant, etc.). Cost Segregation benefits can also be active on a short-term rental if you are participating at least 100 hours managing the property and more than anyone else and the property is rented for an average stay of 7 days or less.

On the other hand, your property will be passive and any passive losses through cost segregation can be used on any other passive loss.

Your best bet is to get a no-cost estimate or two, ask a lot of questions of the company, and discuss the results with a RE smart CPA.

Lane Kawaoka · Answer

Yes I have seen some people do this with the intent to turn their home into a rental or str. That said its grey area

Julio Gonzalez · Answer

@Phil ContrerasYes, you can still do a cost segregation study. Determining whether to do a cost segregation study or not has a lot variables. What was the purchase price of your property? Are you in an area where land is very valuable leaving you with less to depreciate? Some other factors to consider - How long are you planning to hold this property? If less than two years, cost seg probably isn't a good route. Are you planning to do any renovations? If so, I always recommend getting the study done prior to rehabbing.  What is your ROI and the amount paid for a cost seg study? Do you have a current need for that cash flow generated from the tax savings? Could you go reinvest it in another property to build even more income? Would you have net income or net loss without the cost seg study? Are your real estate investments active or passive? Are your losses locked up against your passive income? There are a lot of factors to consider when get a cost seg study to determine if the benefits outweigh the costs. If you are able to get REPS status, that would help tremendously. Have you obtained any detailed cost/benefit analysis quote? Most cost segregation study companies provide the quote for free. Is it a reputable company and will the documentation provided from the study hold up in an audit? If you need any help or have any questions, feel free to reach out!

Phil Contreras · Answer

Appreciate the response on this. It really makes you think and strategize about the long term aspect of passive vs ordinary income.

Can I Cost Segregate if I don't have the Real Estate Professional Status?

Most Popular Reply