Cost Segregation Calculator?

Question

I am familiar with the basics of cost segregation.  I know that recently the market for reports has become much more competitive, and prices for these engineering reports have fallen.  I'm in Southern California.

As an alternative to a full engineering consultation, does anyone have specific experience with DIY cost segregation software/calculators?  I understand that these are relatively new products that are likely most suitable for smaller residential buildings with depreciable basis of less than $1M.  I have only found one example of these self-serve tools, but believe many exist.  The one linked below promises a report for $399, and free support in the event of IRS questions/audit.  This price seems very reasonable if the report is actually going to allow accelerated depreciation.

Who's got real experience and can provide details?  I would also be interested in learning about other companies that offer this type of product.  Thanks

https://www.kbkg.com/residenti...

(I have no affiliation with this company)

Prag Patel · Answer

For those that are interested in seeing a "ballpark" range of what a cost segregation tax credit would look like, feel free to PM me and I send a link to my firm's online tool that can help with this.

Lee Ripma · Answer

here is a link to a blog post explaining this. https://www.redhairholdings.co...the problem with kbkg is that if you make an error on input you can’t correct it. I can’t give tax or legal advice but I personally use DIY cost seg.

Julio Gonzalez · Answer

When considering different self serve tools and cost segregation firms do your Circular 230 Due Diligence and ask:- Does the firm have engineering licenses with the State Authorities?- Has the firm been in business for many years now or are they new to offering this service?- Do they provide the Perpetual Cost Segregation Evergreen Annual Review to assess where additional benefits may be? Annual, evergreen reviews are important to find annual expenses from dispositions, additions, favorable changes in tax laws while also using the changes to drive lower insurance and property tax premiums.- Do they include energy tax benefits within their study?- Do they include insurance and property tax reduction reports in their study?- Do they have the proper insurances and licenses?- What is their reputation with the IRS?- Will they defend my report in an IRS audit?

Those are some key considerations. Happy to provide more/discuss further and be a resource!

Daniel Dietz · Answer

I believe @Lee Ripma has some real world experience and hopefully chimes in here.

Dan Dietz

Jenning Y. · Answer

Thanks @Lee Ripma  for the information, very helpful.

I am also thinking about whether worth it to do a cost segregation.  Bought a new-built fourplex last year for about $700k, if  do a cost segregation can get about $120k bonus deprecation, which can lower my tax by $10k(plus about $20k loss carry forward).  Though I am  not a real estate professional but I sold a property last year with about $60k long term capital gain and $20k Section 1250 Uncaptured deprecation.  My marginal tax rate is just 12%,  and my future family W2 income will be even lower.

SO if I do a  cost segregation, I basically trade my current low rate 12% for future long-term capital gain.  Section 1245 deprecation recapture are effectively long-term capital gain.  Even though Section 1245 deprecation recapture is treated as ordinary income,  but because Section 1245 property will have not much value in the future, so basically they are equivalent to long-term capital gain.

So still hesitating whether worth the trade...

Stevan Franeta · Answer

I would think that this calculator would work best for new construction homes. In essence, what accountants and engineers try to achieve is creating a detailed invoice for the RE property.

For older homes, I believe it would require a detailed review to determine current year values of the systems of the house based on their degradation and support for that analysis.

Cost Segregation Calculator?

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