Cost segregation study- when and why should i fo this ???

Question

Hi,

I am looking for feedback and benefits of doing cost segregation studies for 3 unit multifamily . I recently purchase this multifamily on 5/2020 . i was wondering if this is worth doing and when should i do this . I got the estimate around $3000 for the cost benefit analysis and this is without travel/accomodation cost .
Your expertise will be highly appreciated

Thank you

Joe Splitrock · Answer

Cost segregation allows you to accelerate depreciation on part of your building. That means more deduction earlier and less deduction later. It doesn't really change what you get over time. The obvious benefit is more money now. Todays dollars have more value than tomorrows. There are a couple ways that studies are done. There are people who specialize in this and basically and engineer does the study. Based on the the quoted cost, that seems to be the type you are looking at. There are also software based DIY solutions that cost far less. Generally speaking, cost segregation doesn't make sense for single family or small multifamily. It is a cost/benefit analysis. It can just cost too much for the benefit. For larger multifamily with high purchase prices, these can make lots of sense.

My advice is look at the projected benefit and see how much it really helps you versus the cost.

Lee Ripma · Answer

@Sachin Maskey

I am not giving you tax or legal advice for your specific situation. I personally do cost segregation studies on all properties I buy, even small ones. There are algorithm-based ones that cost under 1k. @Joe Splitrock is correct that it doesn't change what you get over time it just accelerates your losses now. So really a personal question for you - do extra upfront losses benefit your personal financial and tax situation? They do for me but only because I am a real estate professional. Speak with your CPA to determine the benefit to you this year, if any.

Allan Smith · Answer

I personally would rather spend my time and money on making assets more profitable and finding more deals than trying to save a few dollars on taxes. My understanding is cost segregation is worth it on larger assets.

Basit Siddiqi · Answer

@Sachin MaskeyA cost segregation study does not give you more deductions(in aggregate). It does however, allow you to accelerate the depreciation into earlier years.

Does your current portfolio generate positive passive rental income? If the answer is yes(depending on how much), you may benefit from getting a cost segregation study done.Are you eligible to claim real estate professional status - if the answer is yes, you may benefit from getting a cost segregation study done.Most people do not benefit from getting a cost segregation study done.

Cost segregation study- when and why should i fo this ???

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