Tax Implications after adding 3 units.

[David R.]

Hello everyone. Looking for a little guidance on my property in Los Angeles.

My long time CPA has passed away and we are looking for some guidance. 

We finished construction of 3 additional units on a property with a duplex zoned for 5 units. 

The 5 units were fully rented and performing as of November of 2021. The additional 3 units cost $600k 

and took approximately 2 years to complete. 

My question (we are newer investors) pertains to tax implications and depreciation. 

We have owned the property since 2016 and ran it the first five years as a duplex. 

I am curious as to how the amount spent adding the additional units ($600k) will affect our 2021

income tax return.

I have read a bit about cost segregation and was wondering if that might be an 

advantageous path for us. We do not plan on selling the property as we feel it is a keeper

long term. Thank you in advance for any thoughts and/or referrals. I do appreciate it. 

[Natalie Kolodij]

Quote from @Jake Wiley:

The cost seg would likely need to be completed prior to filing the 21 return, otherwise, it would start to get expensive amending prior year returns based on new depreciation schedules.    Based on the timing of the completion, sounds like that wouldn't be an issue.  

Agree with @Ashish Acharya that you'd need to determine if the accelerated depreciation would help you out.   In this case, you are taking an expense this year that you will likely have to pay back when you sell down the road, so it's not a free ride as it is often portrayed.   

You don't amend earlier years. You file a form 3115 in the year cost segregation is done to change depreciation methods.