Checking cost Seg and depreciation across a complicated portfolio

Member since 2009 · 1 post · 1 vote

How do you sanity-check your cost seg and depreciation?

Once a portfolio gets past a few properties, and several 1031's with TIC's etc, the return gets complicated: cost seg studies, passive loss limits, a few entities, maybe an SDIRA. Beyond trusting your preparer, what do you actually do to make sure it's right?

Do you have a second set of eyes, a checklist, or a question you always ask? And has anything ever slipped through that you caught later, or wish you had?

Curious how other investors handle this.

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
5h
I have a couple of clients who delegated this task to Claude. It was helpful, but Claude cannot replace a tax pro as of today. It can only point out a potential area to verify, but the verification has to be done by a tax pro.
And, having reviewed countless complex tax returns prepared by investors themselves, by H&R Block, and by CPAs - it is sadly very rare to find one without drastic mistakes. Not what you wanted to hear, but it is the truth, especially when you have a large portfolio with cost seg and 1031s.
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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5h
I generally trust my CPA, but occasionally review our 1040 form 8582. Looking over your depreciation schedules can also be useful.
I've not done a 1031 so am not sure how that is carried on the 1040.
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Kasing Ng
Accountant · San Francisco, CA · Member since 2026 · 97 posts · 51 votes
5h
Honest answer, on a portfolio your size trusting the preparer isn't enough, and it's not really their fault. Complex returns just have too many hand-offs and stuff slips between the cracks.
First number I'd check is your suspended passive losses on the 8582. Michael and Greg already flagged it and they're dead on. That carryforward quietly compounds any mistake year after year. If a loss got dropped or mis-tracked three returns ago, it just rides along wrong until you sell something and go to release it, and suddenly the math doesn't foot. Pull the actual worksheets, not the summary, and check that this year's beginning number matches last year's ending number. Sounds dumb, breaks more often than you'd think.
Cost seg's the other usual suspect. The study hands you the 5, 7, 15 and 39 year buckets, but the return has to actually depreciate those same dollars over those same lives. The failure mode is the schedule lumping it back into 39 year because nobody re-keyed the allocation. Then you paid for the study and never got the benefit. Worth tying the study totals to the schedule line by line.
The 1031s are where the TICs really bite. Your basis today is a chain of carryovers from every prior exchange, so one broken link early on and every year since is off. That one's worth tracing all the way back once, even if it's a pain.
So to your actual question, no checklist magic, just tie the handful of numbers that carry forward (suspended losses, basis, the depreciation schedule) back to where they came from. Those are the ones that silently rot. A real second read once a year usually catches it before it snowballs. Happy to tell you what to pull if you want to run it yourself.
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
35m
I would be having the preparer walk you through their work or at least get an understanding of how the numbers came together.
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