Accelerated Depreciation on a Househack?

[Katherine Wiltse]

Hi BP community! My husband and I recently purchased a new home in Southern Missouri that has a large shop w/ apartment on it. A CPA I met with discouraged us renting it and encouraged classifying it as a home office to get a $1500 tax credit. We also started a farm LLC and she said there would be benefits for using part of the shop towards farm write-offs (I was considering milking goats in the shop). She isn't very aggressive and also discourages using accelerated depreciation. Here is what I am wondering: can we do a cost seg on just the shop/apartment, even if we are living in a home on the same parcel? Could we just classify a bedroom in our house as a home office to use that tax credit (sorry if Im using the wrong terminology there)? We both also became realtors this year and I am wanting to legally reduce our tax liability as much as possible. We sold our previous home within a year and are looking as some capital gains tax there, although I think after expenses it will be less than 40k gains. Sorry for all the words! All advice is appreciated!!

[Minna Reid]

That seems odd - would the rental apartment not bring in more than $1500/year? I take a room in my house every year, so I would assume anyone can but I am no CPA. I have noticed some of the CPA's seem to be working for the government to collect as much as possible, instead of aggressively finding ways to pay less taxes. In fact in my time I have only met one aggressive CPA like this but he saved me a ton. Shop around. 

[Alex Lee]

my .02 here would be to shop around for other tax professionals--ideally someone more in the investment space AND/OR in the Tax Planning arena in particular. I stumbled on Mark J. Kohler and he seems to shed a lot of light on strategies.

[Katherine Wiltse]

That's what I was feeling for sure. When she said accelerated depreciation is a bad idea, I had a sinking feeling. 

[Julio Gonzalez]

@Katherine Wiltse If you are planning to continue growing your real estate portfolio, it would be advantageous to find a CPA that specializes in real estate taxation. I've worked with many over the years and would be more than happy to provide recommendations if you need. Yes, you can do cost seg on the shop/apartment. Do you feel like you'd be able to rent out the shop/apartment and get more than that $1500? 

[Katherine Wiltse]

I have reached out to a better CPA because I really want to focus on real estate investing (and fuel that with real estate commissions). The better CPA said they hire an engineering firm to do the cost seg and usually starts at 5k. I looked online and found a more DIY $500 cost seg program. Is $5000k the lowest or is there a more affordable route? Is DIY a hard no? Would your referrals work for the state of MO? Sorry for the barrage of questions!! I am incredibly appreciative for your guidance!

[Julio Gonzalez]

@Katherine Wiltse I would recommend getting at free cost/benefit analysis quote from multiple companies to compare. You might find there are more affordable routes and this would help you determine how much the benefits outweighs the cost. If you get an engineered cost segregation study, it takes a much deeper dive into your property and typically results in greater tax benefits. 

[Katherine Wiltse]

Thank you! I appreciate it!