Cost Segregation Estimation

[Tiffany A.]

Hi, a big part of my overall plan to get into STR is to take advantage of bonus deprecation since my husband has a high tax rate. In trying to find the right property and market I'm struggling to figure out how to best estimate the cost segregation. Am I better trying to estimate a property or is there not enough variance for that to make a difference. My math (with some AI help) came up with this table of "real" savings (in year 1) on a hypothetical 1,000,000 purchase.

This tells me there is a HUGE impact to these numbers but I'm not sure how effectively estimate them for potential properties:

Any thoughts from those more experienced is appreciated.
 

[Greg Scott]

Let's talk about your table.  I think your horizontal axis is not helpful. The range is skewed to the low end.  It should extend much higher.

If you were buying a suburban rental on a quarter acre in the midwest, land cost would be about 15% of total cost.  Obviously, if you are on the East or West coast, that percentage would be much higher, potentially 50% or more of the cost.  Also, if the plot of land is much bigger, the percentage would go up.  So, if this is a 2000SF house on 20 acres, the land could easily be more than 50% of the total cost.

The vertical axis should have less variation.  In our latest cost seg, 5-year class life was 22.5% of improvements and 15-class life was 8.4% of improvements, so about 30% of the improvement values were eligible for bonus depreciation.  When I say improvements, that is Total Cost minus Land Value.

Finally, let's talk about the math in the table. Fifteen percent of 900K is $135K. I presume you were trying to get your tax savings by assuming you are in the 45% tax bracket.  I'd recommend you talk to your CPA to verify rather than use a straight percentage.  

Remember, you should also be able to write off a lot of legit business expenses.  My wife and I have shifted a lot of our costs from post-tax to pre-tax.  Our cell phone bills, printer expenses, a lot of mileage on our cars, meals, etc are now classified as business expenses and get paid for with pre-tax dollars.  This is critical.  If you and I both have a $100 cell phone bill, I paid $100 for it.  You had to earn $181 dollars to pay for it because you also paid for the income tax to the governement. ($181 at a 45% tax bracket is a net $100 after tax).