Cost Segregation Analysis for primary residence

[Patrick Fricchione]

I have an investment property in an LLC acquired through a 1031 exchange. Should I decide to demo the property in 4 years and rebuild, can I do a cost segregation analysis and use it as a primary residence or will the 1031 disallow it? I hate to miss out on the accelerated depreciation with the CSA.

[Dave Foster]

@Sean O'Keefe, appreciate that shout out!  @Patrick Fricchione, You will not create any tax consequences simply by converting the use of a property.  Only a sale will trigger the tax.

However there are a couple issues here.

1. When you demo and rebuild you'll need to hold it long enough to have it as an investment property in order for the cost seg to impact.  And there is also the issue of basis that @Basit Siddiqi mentioned.

2. If you convert to your primary you'll not have a tax event until you sell.  If you have owned it for 5 years and lived in it for 2 out of the 5 years prior to selling it then you will get a proration of the gain tax free for the period of time you lived in it.  the period of time it was investment you will pay tax on.  And you wil have to recapture all depreciation.  

conversions generally don't work great when combined with a cost seg.