Combining a Cost Segregation Report and a 1031 Exchange

[Philip Ganz]

Has anyone Combined a Cost Segregation Report and a 1031 Exchange?  What is the upside? The downside? Any recommendation for a cost segregation report?

[Scott Roelofs]

@Philip Ganz This is a great question and serves for a large amount of confusion. Bottom line, cost seg and 1031 are great partners. A 1031 is a tax deferred exchange of “real property” or 1250 property. As cost segregation allocates a large amount of property to 1245 property it cannot be 1031 exchanged. As a property ages and gains in value more and more of the value is allocated to 1250 property. (I.e. more valuable office with old carpet) This means a larger unrealized gain on the “building” or 1250 property. This set up is perfect for a 1031 exchange.

Also, one benefit of cost segregation is trading taxes now for taxes later but of thought of a different way it’s better than that. If you could slap your hand on a pool of water and the waves pushed off taxes for 7 years, what would you do in year 6 or 7? Slap the water again. As we say, Accelerated depreciation is best when repeated.

Reach out to me for more detail. And we are pretty go at cost segregation, if you are wondering. 👍