Cost segregation study/Looking for CPA

[Suzanne Johnston]

I recently learned a bit, but not enough to be confident about cost segregation studies.  I’ve bought two properties this year and wanted to talk to my CPA about it.  I left a message and haven’t been called back.  Last year I felt like she was almost discouraging me from depreciating a property.  So I’m thinking it might be time to find a new CPA.   Does anyone have a CPA they recommend in the Lubbock area?   

[Adam Simpson]

@Suzanne Johnston

Cost segregation studies are not for everyone.

Here are a few things to consider before having one completed:

-       What is the cost of the study? Studies can range from hundreds of dollars to thousands of dollars depending on whether you use a DIY approach or an engineering study.

-       What tax rate am I in? If you’re in a lower tax bracket, then any additional losses generated from bonus depreciation are going to be less effective than someone who is in the 37% tax bracket for example.

-       Are these losses non-passive to offset my other sources of non-passive income? If they’re passive, you may not be able to take advantage of all the bonus depreciation that was accelerated from the study in the first year.

-       Do I plan to hold the property for a few years? Depreciation recapture is tax you’ll need to pay upon sale of the property (unless you 1031 exchange the property). If you only hold the property for a couple years did the time value of money theory have enough of a benefit to justify the cost of the study? It might not for everyone.

These studies are not for everyone. Depending on your situation, your goals, your tax bracket, and whether you can treat these losses as non-passive will all weigh into your decision of whether it’s worth it.