Cost segregation for the purpose of expediting depreciation (SFR)

[Uri E.]

Hello,

I buy, hold and rent out single family residences. Each new acquisition I then depreciate using a standard straight depreciation - total cost of land improvements. I recently learned that I could expedite some of the depreciations through cost segregation which can be then depreciate over 5,7, or 15 years, depending on the item.

Asking for your advice and guidance on the following:

1. Is there a downside to doing cost segregation, to expediate depreciation?

2. Hiring someone to do the cost segregation analysis and report can cost $10K-$15K. When is such expense of hiring a team to do the segregation analysis, actually worth it?

3. Can I do these cost segregation estimates myself?

4. If I do these estimates myself, will that be in violation of IRS rules?

5. And finally, can I do cost segregation to expedite depreciation for properties I already owned for a few years?

Thank you!

[Natalie Kolodij]

Asking for your advice and guidance on the following:

1. Is there a downside to doing cost segregation, to expediate depreciation? If your AGI isover $150k you can't use passive losses, no reason to generate more of them. And the downside is you'll have less depreciation later. 

2. Hiring someone to do the cost segregation analysis and report can cost $10K-$15K. When is such expense of hiring a team to do the segregation analysis, actually worth it? It won't cost $10-15k for single properties. KPKG does software based cost segs for about $700.

3. Can I do these cost segregation estimates myself? No. The IRS requires a reasonable method, cost seg is most upheld. Unless you're a structural engineer you're not really qualified to accurate allocate components of a property with adjusted values.

4. If I do these estimates myself, will that be in violation of IRS rules? Kind of 

5. And finally, can I do cost segregation to expedite depreciation for properties I already owned for a few years? Yes then a form 3115 is required in year of filing and it's fairly complex. Woudln't do this without a tax pro.