Cost Segregation Benefits for Real Estate Investors

Accountant · 33301 · Member since 2022 · 57 posts · 43 votes

Let's chat! How have you leveraged cost segregation studies to accelerate depreciation and increase cash flow on your real estate investments?

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Bette Hochberger, CPA, CGMA4.622 Reviews

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Michael PlaksPro Member

Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes

Quote from @Danny Arnold:

Can anyone recommend a company to do a cost seg on a couple of properties that we bought this year?

Yes. Companies run by @Bernard Reisz, @Yonah Weiss or @Julio Gonzalez

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Peter Morgan
Rental Property Investor · West Des Moines, IA · Member since 2018 · 447 posts · 64 votes
2y
@Bette Hochberger
Great thread to start a topic on Tax Strategies.
Does this include bonus depreciation?
Its 80% this year, planning to leverage it to offset capital gains tax upon selling a rental next year.
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Bobby Nilsen
Rental Property Investor · Los Gatos, CA · Member since 2017 · 124 posts · 131 votes
2y
@Bette Hochberger Quick question, have done a cost seg on a few properties, but it seems that now locks you into holding or having to trade that property or get hit with a nice tax bill upon selling. Outside of the immediate benefit is there a longer term benefit?
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Peter MckernanBusiness Member
Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
2y
Quote from @Bobby Nilsen:

@Bette Hochberger Quick question, have done a cost seg on a few properties, but it seems that now locks you into holding or having to trade that property or get hit with a nice tax bill upon selling. Outside of the immediate benefit is there a longer term benefit?

You're right the long-term benefits are not as robust as the short-term.. I would think about using this to increase your capital to do another deal, or rehab that property then push the money in 5-6 years to a 1031 towards another deal. The benefit is not paying taxes to the government and leveraging whatever you can to get more money for more deals (passive and active income).
The McKernan Group4.957 Reviews
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Ash Hegde
Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes
2y
@Bobby Nilsen you are correct about having to pay the tax upon sale. A cost seg is a deferral of tax with immediate benefits, but it doesn't go away forever. The way cost seg and other tax benefits work, real estate becomes a buy and hold forever game.
There a couple of things you can do depending on what your goals are - If you need cash, look into a refinance. If you want to sell and buy other investment properties, look into a 1031 exchange. On a regular sale, you will be hit with taxes on all the benefits you took.

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Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
2y
Get ready!
Bonus depreciation, one of the benefits of real estate investing, is being phased out.

→ 100% Bonus Depreciation (2018-2022): Under the Tax Cuts and Jobs Act (TCJA), businesses were allowed to deduct 100% of the cost of qualifying property in the year it was placed in service from 2018 to 2022.

→ 80% Bonus Depreciation (2023): For assets placed in service in 2023, the bonus depreciation is scheduled to phase out, with businesses able to deduct 80% of the cost.

→ 60% Bonus Depreciation (2024): For assets placed in service in 2024, the bonus depreciation is scheduled to further decrease to 60%.

→ 40% Bonus Depreciation (2025): For assets placed in service in 2025, the bonus depreciation is scheduled to decrease to 40%.
→ 20% Bonus Depreciation (2026): For assets placed in service in 2026, the bonus depreciation is set to reduce to 20%.

We are investing in equipment (section 179) to extract this bonus depreciation without having to recapture the losses.
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Danny Arnold
Member since 2023 · 14 posts · 6 votes
2y
Quote from @Lane Kawaoka:

Get ready!
Bonus depreciation, one of the benefits of real estate investing, is being phased out.

→ 100% Bonus Depreciation (2018-2022): Under the Tax Cuts and Jobs Act (TCJA), businesses were allowed to deduct 100% of the cost of qualifying property in the year it was placed in service from 2018 to 2022.

→ 80% Bonus Depreciation (2023): For assets placed in service in 2023, the bonus depreciation is scheduled to phase out, with businesses able to deduct 80% of the cost.

→ 60% Bonus Depreciation (2024): For assets placed in service in 2024, the bonus depreciation is scheduled to further decrease to 60%.

→ 40% Bonus Depreciation (2025): For assets placed in service in 2025, the bonus depreciation is scheduled to decrease to 40%.
→ 20% Bonus Depreciation (2026): For assets placed in service in 2026, the bonus depreciation is set to reduce to 20%.

We are investing in equipment (section 179) to extract this bonus depreciation without having to recapture the losses.

Can anyone recommend a company to do a cost seg on a couple of properties that we bought this year?
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
2y
Quote from @Danny Arnold:

Can anyone recommend a company to do a cost seg on a couple of properties that we bought this year?

Yes. Companies run by @Bernard Reisz, @Yonah Weiss or @Julio Gonzalez
3 Reply
Julio GonzalezPro Member
Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
2y
Thanks for the shoutout @Michael Plaks!

@Bette Hochberger feel free to reach out if you have any questions or would like a free cost/benefit analysis quote.
561-253-6640
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Bernard ReiszPro Member
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
2y
@Michael Plaks Great list! ;) @Danny Arnold There's lots of good stuff on this thread. For more focused and authoritative discussion, check out BP content created by Michael Plaks. Love his content so much that I've plagiarized it in our investor education platform!
[email protected]
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