1031 Boot, Cost Segregation and how to lower taxes

[Erik Bood]

Situation: In 2022 I sold an 8 unit complex and did a 1031 into another 8 unit complex and I wasn't able to fully use my 1031 funds. I knew it wasn't ideal for this to happen but I was only willing to purchase a property that penciled and made sense to own with strong potential upside. I ended up with around $220k of "boot" that wasn't reinvested.

Relevant Background about me: My wife and I both have full-time W2 jobs and we are not real estate professionals according to the IRS. We also own around half of another 22 unit in the Portland area that cashflows pretty well but our standard depreciation seems to cover most, if not all, of the cashflow from this property.

Question: If I have a cost segregation study completed on my 8 unit (PP of $1.2M) that I purchased in 2022 will that paper loss reduce the tax on my "boot" from my 1031 that I partially failed in 2022? My current understanding is that the additional paper loss on my cost seg of this new property will not reduce my tax liability from the sale of the original property. Is this accurate? Do you have any recommendations or ideas of how to reduce this tax bill at this point?

Looks like I'll owe $50k or so on taxes and depreciation recapture according to my CPA and my understanding above is from a conversation with him. If you have experienced this, or are a CPA or have ideas on how to best handle this, I'd greatly appreciate the advice!

Fun fact, started with a 4 unit owner occucpied and have worked my way up to 30 units in Oregon. BP has been a great resource!

Erik