A buddy of mine mentioned cost segregation the other day, and I had no clue what it was. After looking into it, I kinda wish I knew about it sooner. Seems like a way to speed up depreciation on rental properties and save a lot in taxes this year.
I own a couple of rentals and just bought an $800K house hack. Now I’m wondering:
If I didn’t do a cost segregation study when I bought the properties, can I still do one later and get the benefits?
If I’m planning renovations, should I do the study before or after?
What’s a reasonable cost for a study on a smaller property?
Would love to hear from people who have done this. Was it worth it? And if you know a good company that isn’t crazy expensive, let me know!
If I didn’t do a cost segregation study when I first bought, can I still do it later and claim the benefits?
Yes, but for a rental, there might not be a ton of items that can be separated from the main building to depreciate faster.
If I’m planning some renovations, is it better to do the study before or after?
Doing it before could help, since the study can identify components you’re replacing, which might allow you to write them off sooner.
What’s a reasonable cost for a study on a smaller property?
Usually a few thousand dollars. These studies take experienced engineers who go through your property and plans to break down components properly. That’s why you see them used on large apartment buildings more often than single-family homes.
@Marley
Actually, about 25-30% of the building could qualify for shorter depreciation and bonus depreciation might go back to 100% this year. If your building cost $600K, you could see around $150K eligible. Cost for a study usually falls between $500 and $2,500.
I had no idea this was a thing until last year. My CPA suggested it, and I was skeptical, but I ended up saving way more in taxes than I expected. It wasn’t even that expensive. Definitely worth looking into if you own rentals.
Wait… why does nobody talk about this? I feel like I’ve been playing real estate investing on hard mode while everyone else is getting bonus depreciation like it’s a cheat code. Who has a good cost seg company that doesn’t charge a fortune?
I keep hearing about cost segregation, but is it even worth it for smaller properties? I have a $200K rental, and I got quoted $3K for a study. That felt steep, but maybe I’m missing something?
Did a cost seg on my 4plex last year—no regrets. The tax savings basically paid for my HVAC replacement. I used Cost Segregation Guys since they were way cheaper than the big firms, and my CPA was happy with their report.
If I plan on renovating, do I do the cost seg study before or after? I’ve got a duplex, and I’m putting about $50K into it. Don’t want to mess up my depreciation benefits.
I was unsure about cost segregation at first, but after running the numbers, it made a lot of sense. Accelerating depreciation really helped lower my tax bill in year one. I used Cost Segregation Guys—they had solid pricing, and my CPA approved their work.
I did a cost seg on my short-term rental last year. Huge depreciation deduction that pretty much wiped out my rental income tax. Used Cost Segregation Guys since they had the best price I found, and the process was smooth. Definitely recommend for STR owners.
You can always do Form 3115 with a cost seg study to catch up on missed depreciation. But for just one rental, the cost of the study might not be worth it. You might not have enough short-lived assets to make it worthwhile.
@Sawyer
I’d have to disagree, especially if bonus depreciation goes back to 100% and OP qualifies as a real estate professional or is active in short-term rentals. Cost for a study is between $500 and $2,500, though I wouldn’t trust the $500 DIY options.
Sawyer said: @Tristan
How much short-lived stuff are you finding on a residential rental? Are these mostly apartment complexes?
Usually 25-30% of the value. Mostly single-family homes and condos used as STRs, since active participation in STRs is a lot easier than qualifying as a real estate professional.