All Forum Posts by: Malik Javed

Congratulations, Jason on your new purchases. Cost Segregation is a great tax planning tool. I definitely recommend that you seek out a Certified Cost Segregation Professional so that you are confident in the quality of the work performed and the deliverables produced. Here are some key criteria for evaluating a Cost Segregation provider:

-  Seek out a Certified Cost Segregation Professional

- Consider their experience with tangible property regulations. Will they be prepared to address retirements and disposition? Repairs vs. capital expenditures.

- Find out how long the provider has been doing cost segregation studies and how many they have performed

- Consider the resources available to the provider.  Are they a nationwide firm?  Do they have the necessary resources to stay on top of all the tax issues such as 1031 exchanges, 754 Step-Ups, etc.

Feel free to send me a private message if you have any questions here.  

It depends...most carports without exterior walls/doors would fall under a 15-year property under asset class 00.3.  However, if a carport is an enclosed structure that looks like a building - meaning it has a roof with solid walls and a door, it will be considered real property (27.5/39 year).  I hope this helps.

Quote from @Patrick Fricchione:

I have an investment property in an LLC acquired through a 1031 exchange. Should I decide to demo the property in 4 years and rebuild, can I do a cost segregation analysis and use it as a primary residence or will the 1031 disallow it? I hate to miss out on the accelerated depreciation with the CSA.

Yes, you can utilize a cost seg study on your acquisition via 1031. You and/or CPA should be able to provide the depreciable carryover and excess bases, if any. You also might want to consider using the general asset account (GAA) as a strategy to possibly continue depreciating the property before demolishing and rebuilding.

Obviously, once you convert the investment property into a personal residence, you lose out on any further deductions from a P&L standpoint.

Feel free to DM me if you have any further questions.

Congratulations, Chad. I can help you with any cost segregation questions you have. Feel free to contact me directly.

Quote from @Benjamin Weinhart:

Hi Luis, you have a very interesting problem. We can give suggestions here, but you're at the point where it is 1,000% worth it to schedule a planning meeting with a professional. They may only charge a few hundred or few thousand depending on how involved it is whereas you could save multiple orders of magnitude of what they charge in savings/deferrals. They'd be able to give a lot more personalized advice versus what you might find on public forums such as these.

That being said, there's a variety of strategies you might be able to employ. It kind of depends on what your goals are, but you may be able to start consolidating your properties a little more with like-kind exchanges and/or purchasing larger properties where you could do cost-segregations on. Assuming you don't want to create additional management work for yourself, it's possible that higher value properties may give you the advantage of the higher capital outlay without additional work. The drawback of course is that you may be looking at smaller returns %-wise. Depends of course on how the deals work out.

Adding to Benjamin's suggestion, by utilizing cost segregation studies, you can take advantage of the accelerated depreciation for shorter life assets in lieu of depreciating the entire property over 27.5-years. This applies to current year tax deductions, and you can also employ a “look back” cost seg study where you can retroactively reclaim any missed deductions from previous tax years.

By filing a form 3115 and calculating the proper 481(a) adjustment, you can recapture and correct any erroneous depreciation in prior years and claim the difference in the current tax year as a lump sum. This methodology is advantageous for taxpayers since this does not involve filing amended tax returns.

Other things to consider bonus depreciation, Qualified Improvement Property (QIP), and 179. Please also remember that not all states conform to federal law. Please consult with your CPA and/or tax attorney for appropriate tax planning. Feel free to reach out if you want more insights.

Quote from @Jagan Reddy:

The cost segregation allows for accelerated depreciation creating pretty big losses on first year of acquisition and there after also.

But schedule E doesn’t allow posting those losses to personal taxes 1040. 
losses stay with schedule E until they get offset by future profits from property.

Did I get this correct?

If yes, offsetting personal taxes as ‘benefit’ of owning real estate is not really an easy thing right?

Thanks in advance for feedback 

Jagan

Due to the passive activity loss rules (PAL's), passive losses can only offset passive income, not active income. Any remaining losses are suspended and carried forward indefinitely until such time any new passive income can be used to offset the losses.

Owning real estate can be a great investment. However, generating large amounts of deductions/losses won't help you if your passive income is too low. On the other hand, if your passive income is high, having these deductions will definitely help to reduce your taxable income.

Quote from @Joshua Awodele:

Just found out that Connecticut disallows section 168k & section 179 bonus depreciation. For reference, see: https://portal.ct.gov/-/media/drs/publications/ocg/ocg5bonus...

Is there an exemption to this rule or can bonus depreciation from a cost segregation study be applied via a different IRC code? Or any other tax strategy?

Thank you BP Nation.

Unfortunately, some states like Connecticut and California do not allow bonus, QIP, and limit Section 179 deductions. At this time there's no other IRC section that can work around the state issue.

Quote from @Hector Escobar:

I am very surprised by this. I think contractors are everywhere, literally drive around or do a google or facebook search and vet them. Finding a good one might be a different discussion because it depends on how you define "good". "Good" doesn't mean cheap, "good" to me, means reasonable prices with quality finishes, good time management, adequate experience and no cutting corners. I personally believe its harder to find a great tax professional who doesnt just know the basics. I often find myself knowing more than my tax professionals and that to me is not a good sign. 

I've heard this sentiment many times.  If you're ever looking for a tax professional recommendation, feel free to message me.  In my field of work, we collaborate with different tax professional all over the country and I personally have a few favorites with various knowledge and insights!

Russell - happy to help. I just sent you a message.

That's right, you can convert the property at a later date.  It will be a "change in use".