Cost Segregation -- How Much Can I Really Save?

Question

Greetings BP!

I am trying to figure out if paying for a Cost Segregation Study would be worth it for a duplex I purchased earlier this year. I haven't done this for any of my properties in the past but with the election coming up, I don't know if I will have the opportunity to depreciate RE in this manner in the future. I have done some research and it seems like the individuals that benefit the most from Cost Segregation Studies are those who purchase very large assets like commercial properties or apartment buildings. For anyone with knowledge or experience in this area, what are your thoughts?

So the property I purchased was duplex for 120k. I purchased the property with conventional financing. It's collecting $1400 per month in rent and I'm cash-flowing about $400 per month in total. Instead of depreciating the property over 27.5 years, would it be worth paying someone to do a CSS and depreciating the entire asset at once?

Paul Shannon · Answer

I think it’s very worth it if you can qualify for “real estate professional” status as defined by the IRS.  Allowing you to deduct your passive losses against your active income, including your spouse if you have one.  Otherwise, likely not worth it unless you have a lot of other rental income to offset.

Basit Siddiqi · Answer

@Timothy LewisFirst - you will not be able to write off the whole purchase in the first year.Second - $120,000 is likely on the low end for a engineered cost segregation study but there are DIY softwares for cheaperThird - you need to determine if you would benefit from a cost segregation.You benefit = do itYou don't benefit = don't do itConsult with your tax accountant as he would know for certain.

Stewart Beal · Answer

My cost segregation guy says it is not worth is on a purchase price of less than $500,000.

Ashish Acharya · Answer

no you can’t take deduction for the entire asset. CS gives your deduction of about 15-30% of the purchase price. But on the single family houses and small multi, the deduction is on the lower side. Sometimes your CPA can help you seg the asset if you rehabbed the property.

Even if it was possible, depreciating and taking entire loss at once is not smart because as your taxes goes to zero, you miss most of the tax credits you were entitled.

Mike Nelson · Answer

The expense of the fees to pay a professional means the value of the property would have to be high enough to offset this.

Timothy Lewis · Answer

That's kinda what I figured @Stewart Beal Thanks for your help

Timothy Lewis · Answer

@Ashish Acharya Ah, I did not know that. Thanks!!

Cost Segregation -- How Much Can I Really Save?

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