Cost seg / accelerated depreciation to offset W2 - thoughts

[Sean Gallagher]

Please chime in if you have done this.. Short term rental with cost seg study/ accelerated depreciation to offset W2 income. Say you're doing this on a 4 unit that appraised for about a million. And you do a cost seg study, If you plan to hold this property long term does it make sense to do this? Meaning will it wipe out the majority of your write-offs moving forward? Because you wouldn't be doing 27.5 years anymore. Say you do 5 years. Once the 5 years runs out you'll only be able to offset your cash flow with mortgage interest? Unless you do upgrades to depreciate, like another roof, large appliances, AC unit etc. I guess you would have to buy another property and do the same thing to keep chasing write-offs. Seems risky? 

[Basit Siddiqi]

A cost segregation will not classify the whole building as 5 year.

It will classify some as 39 year, 15 year, 7 year, 5 year and 0 year.

The items classified as 15, 7 and 5 year will be eligible for bonus depreciation.

Since bonus depreciation is currently 60% for 2024, you will still be depreciation some of the remaining depreciable assets over the next 15, 7 and 5 years.

A majority of the building will still be classified as 39 years which still gives you a good amount of depreciation into the future.