Cost segregation for properties rented out against my will

[Sim Xing]

Hello, I ran into a situation and I would like to ask for some advice.

I've purchased a property earlier this year as my primary residence, under California, SB1079. After purchasing the property, I have discovered that there is tenant living in it. They had a valid lease with previous owner and it took me seven months to get them out. In the seven months my tenants lived in my property, they paid rent. So my property was effectively rented out for the major majority of the year, even though my intention of purchasing, it was to live in it as my primary residence.

Under such circumstances, can I still cost segregation on this property and file my taxes as a rental? 

[Jason Malabute]

Sorry to hear that. That must be very frustrating.

However, before asking whether you can do a cost segregation study, I’d first make sure it would actually benefit you if you did. A couple of things to think about:

• Are you a real estate professional for tax purposes?
• Do you make less than $150,000 of modified adjusted gross income?
• In both situations passive losses can offset your active income.

If the answer is “no” to both, then even if you could technically do a cost segregation study, you may not see much of a tax benefit from it. That’s why it’s usually better to clarify those points first before scheduling a consultation.