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Started By
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Anyone ever do cost segregation for their rentals?
Posted on 9/28/23 at 2:34 pm
Posted on 9/28/23 at 2:34 pm
Just got quoted 21k cost to save 71k in taxes. I've never done it and don't really know the pros/cons.
5
Posted on 9/28/23 at 3:35 pm to Billy Blanks
But you'd be getting those write offs anyway albeit over an extended period of time with no study and -0- cost. I'd also want to do it when tax rates are higher to make it worthwhile and would never do it on properties under 3-4 million. I think they have their place in the perfect situation but I see it more of a sales push from these companies that do the studies and drum up these fees... JMO
Posted on 9/28/23 at 4:20 pm to Billy Blanks
quote:Be careful and make sure you understand it thoroughly. Many cost segs sound better than they are (marketing smoke). It can be an acceleration of deductions, but make sure it is a reputable company and that it can hold up to IRS scrutiny. Will they defend it if contested?
Just got quoted 21k cost to save 71k in taxes. I've never done it and don't really know the pros/cons.
This post was edited on 9/28/23 at 4:21 pm
Posted on 9/28/23 at 4:45 pm to NOSHAU
quote:
Just got quoted 21k cost to save 71k in taxes. I've never done it and don't really know the pros/cons.
Be careful and make sure you understand it thoroughly. Many cost segs sound better than they are (marketing smoke). It can be an acceleration of deductions, but make sure it is a reputable company and that it can hold up to IRS scrutiny. Will they defend it if contested?
They seem reputable, 22,000 of them, zero audits.
Posted on 9/28/23 at 7:43 pm to tigerbeancounter
quote:
But you'd be getting those write offs anyway albeit over an extended period of time with no study and -0- cost. I'd also want to do it when tax rates are higher to make it worthwhile and would never do it on properties under 3-4 million. I think they have their place in the perfect situation but I see it more of a sales push from these companies that do the studies and drum up these fees... JMO
Good point. I think I'll pass
Posted on 9/29/23 at 5:03 am to Billy Blanks
quote:
22,000 of them, zero audits
Bet there's a few asterisks with that claim
Posted on 9/29/23 at 7:15 am to Billy Blanks
quote:
They seem reputable, 22,000 of them, zero audits.
0% chance of this
Posted on 9/29/23 at 7:33 am to Billy Blanks
I work for a cost segregation firm, and that fee seems outrageous
Posted on 9/29/23 at 2:04 pm to Jeauxy
I am a CPA and have clients that have engaged cost seg experts from time to time. Agreed that fee seems incredibly high.
Posted on 9/30/23 at 10:06 am to Billy Blanks
You get those write offs over 20+ years. Way better to get the write offs early especially if it’ll save you 70k in taxes.
Also with our current leadership the bonus depreciation is going away over the next few years so best time to do it is now.
Also with our current leadership the bonus depreciation is going away over the next few years so best time to do it is now.
Posted on 10/1/23 at 4:45 pm to Billy Blanks
quote:Seems unlikely (unless they handle a lot of very small studies).
They seem reputable, 22,000 of them, zero audits.
Posted on 10/2/23 at 3:36 pm to Billy Blanks
How would they know how much in taxes you can save up front via a quote? They won't know until they get in there and do the work and see what you have.
Also, you aren't really "saving" taxes, you are simply front loading the eventual tax deductions, which depending on your tax brackets in those years could be a good thing or a bad thing.
Finally, if this rental is a passive activity to you, then you might be getting all these front loaded tax deductions, but they are going to get trapped in the passive loss rules. Which means you aren't going to actually see the benefit of those deductions for a long time.
Cost segs can make sense when the taxpayer needs, and can immediately use, a lot of tax deductions, but that often isn't the case, and that's not something the cost seg firm is going to be able to answer for you.
Also, you aren't really "saving" taxes, you are simply front loading the eventual tax deductions, which depending on your tax brackets in those years could be a good thing or a bad thing.
Finally, if this rental is a passive activity to you, then you might be getting all these front loaded tax deductions, but they are going to get trapped in the passive loss rules. Which means you aren't going to actually see the benefit of those deductions for a long time.
Cost segs can make sense when the taxpayer needs, and can immediately use, a lot of tax deductions, but that often isn't the case, and that's not something the cost seg firm is going to be able to answer for you.
This post was edited on 10/2/23 at 3:39 pm
Posted on 10/3/23 at 5:02 pm to LSUFanHouston
Excellent points. Not sure if this was a residential or a commercial property. There projections probably assume you keep the property thru the full term of depreciation of 27.5 years for Residential rental or 39 years for commercial. How many taxpayers actually keep their properties that long? Speaking from experience I wasn't even close on the residential side to keeping for 27.5 years.
Posted on 10/3/23 at 9:31 pm to Billy Blanks
This is tough without knowing details. Is this a multi family property? Is the cost for service to do the cost seg 21k?
Posted on 10/4/23 at 6:26 am to tigerbeancounter
quote:
But you'd be getting those write offs anyway albeit over an extended period of time with no study and -0- cost
Depending on what’s capitalized, much better to get those deductions now or within 5 years vs 27.5 or 39.
OP, talk to your CPA. Yes you would get the deductions for your book financials, but you may be limited as to what you can actually deduct on your tax return due to rental loss limitations or passive activity loss limitations.
Posted on 10/4/23 at 11:31 am to jordan21210
I think you need to also look at what your time horizon is for that rental property or properties in general. Do you intend to keep 10 years? 20 years? until you die? That savings they are quoting is over the lifetime of depreciation for that rental. How likely are you keeping until the end on depreciation?
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