Cost Seg Assumptions

[Eric Williams]

I'm a new member but I have a CPA and Masters in Accountancy and Master in Taxation.

I saw people posting about cost seg decisions and thought I would share some thing I had learned from others

1) The cost seg savings may be calculated at the highest marginal rate to maximize the potential benefit presented by the solicitor. If you are just starting you may not have income that creeps that high. Remember a deduction's value is partially based on the marginal rate.

2) Ask yourself how long you're going to hold the property. If you cost seg and bonus, then sell it two years later, you have ordinary recapture and much less potential capital gain.

3) You don't have to bonus all asset classes, be selective.

4) There is an assumption when you are presented the potential benefits by the vendor that you will hold it until the end of the class life, which could be 27.5 or 39 depending (possibly unlikely)

5) Even if you bonus it or 179 it (together potentially), the deductions might be so much greater than the income it gets suspended at the activity level. You didn't really accelerate anything and because of the time value of money every day that loss sits unused it becomes less valuable. 

6) I learned a strategy alternatively from farming. Taking straight line provided a hedge against the amortization (as the interest deduction decreases, income increases, but the depreciate hedges it somewhat)