Tradeoffs: amending taxes with cost segregation & bonus depreciation

[James Likis]

When filing our 2022 taxes, our CPA did not mention or encourage us to do a cost segregation study to capture bonus depreciation on the two properties my wife and I acquired in 2022. Our goal is to invest aggressively and, hopefully, allow me to step back from a full time W2 within 5 years while my wife continues on with her W2. At that point I’d plan to have real estate professional status. 

With this goal in mind, what are the tradeoffs of getting a cost segregation study done, amending our 2022 taxes, and capturing bonus depreciation? It’s feeling like a worthwhile move since we can put those added losses to work sooner than later given our goals and timeline. What are some arguments for and against? 

Thank you in advance for additional insights and perspectives!

[Michael Plaks]

Quote from @James Likis:

@Michael Plaks Thank you for linking that thread. I was wondering about Myth 4: The sooner I do cost segregation, the better. There is nothing to lose. Are you able to use the passive losses that accrue on Form 8582 in future tax years to take a greater loss or offset profits on Schedule E? I am wondering if I do have a misunderstanding here, as I thought this was doable. 

To @Basit Siddiqi's question, I know there wouldn't be a benefit to our 2022 taxes: my wife and I are full time W2 and we already show a loss on Schedule E. My thinking was to capture the added losses that cost segregation and bonus depreciation would provide us now and use them in future years when I move out of full time W2 and into REPS to then count against my wife's W2 income (we file jointly). 

Basit was bringing up the same issue that I pointed out and that you seem to understand: there is unlikely any immediate benefit. Cost segregation firms calculate your potential savings, assuming you CAN take extra depreciation deductions. We all seem to agree that you cannot.

Your long-term plan will not work. In fact, it will be severely counter-productive. Once you qualify for REPS, you do NOT unlock your past accumulated losses, only your current losses. Doing cost segregation after you qualify for REPS, on the other hand, may solve the problem. Which is part of my "Myth 4" that you asked about.

If it was simple, we real estate accountants would've been replaced by AI already.