Can I benefit from a Cost Seg on existing multi-family once I have REP status

Question

If I purchased a multi-family property in 2018 and my wife establishes REP status this year (2024), can I benefit from doing a cost seg on that property. I never did a cost seg in the past. I have been paying a lot of taxes every year from selling stocks and have a high W2. I expect to pay about ~$35k in taxes this year.

I also understand it will only be 60% and not 100% bonus depreciation for this year. The property/improvement value minus the land value is about $480k.

PS. If you can recommend a RE CPA+TaxPro in the Dallas-Fort Worth area, I'm all ears! Thank you guys!

Michael Plaks · Answer

@Kristafer Nicaj

1. Yes you can benefit from cost segregation this year if your wife does indeed qualifies for REPS.

2. There is a proposed law making its way that would restore the 100% bonus depreciation, and it's likely to happen.

3. But it does not matter to you either way, because you will be relying on 2018 law, not 2024 law, so you're assured of 100% bonus depreciation.

4. The actual mechanics of retroactively calculating cost segregation and then applying it to your 2024 taxes are complicated. DIY is not recommended.

5. There're many tax accountants on this forum that specialize in this exact work, and we all work nationwide. But none of us are allowed to offer you our services, per Bigger Pockets rules. You need to browse this forum, find experts who you want to work with and initiate the contact from your end.

Bernard Reisz · Answer

@Kristafer Nicaj Although he location of your tax accountant is not nearly as crucial as their experience, location is still a factor for a host of reasons. That location factor is primarily driven by state, more than city. (Although there are some cities that have their own tax code, it's relatively rare.) You're fortunate to be in the same state as the truly incredible @Michael Plaks, so you can have the best of all worlds. I'm fortunate to discuss all sorts of complex real estate tax issues with Michael on a near daily basis. For a TX real estate pro, Michael is an obvious choice of tax pro.

Prior to pulling the trigger on a Cost Seg study, you should evaluate 2 things:

1 - How much net additional deprecation tax deductions a Cost Seg study would provide: Best way to get this is by requesting a free feasibility analysis from a Cost Seg provider. The preliminary analysis can have lots of data, so it's important that the provider thoroughly review it with you to explain what depreciation tax deductions Cost Seg study provides and what depreciation benefit you would get w/o Cost Seg. Michael Plaks has a great post on this topic.

2 - Assess the value of those tax deductions to you: Best way to get that is by working with a real estate tax expert. (If all else fails, ReSure's got extensive resources on all these subjects in our educational platform)

Michael Plaks · Answer

#3 - based on the year the property is placed in service, 2018 in your case, but applied to the current tax return, 2023 as of today.

Which means she needs to qualify for REPS in 2023. If she qualifies in 2024 but not in 2023 - hold right there. Bad timing for cost segregation.

Basit Siddiqi · Answer

Yes, it is possible to get a cost segregation study on a property placed into service in the past.There is potentially a requirement to file form 3115 which basically says that you screwed up the depreciation in the past and are therefore recalculating it.

Michael Plaks · Answer

Yes, one can, but the procedure is complicated.

Arn Cenedella · Answer

@Michael Plaks

Thank you for sharing your expertise. I learned something this morning.

🙏

I imagine one has to do a cost benefit analysis.

Complicated usually means expense. So I imagine the benefits of the cost seg have to be weighed against the legal and professional fees to get it done.

If I had to guess it might require revision and re-file of prior year returns.

Julio Gonzalez · Answer

@Kristafer Nicaj Yes, you definitely have the potential to benefit from a cost seg study. Your property would qualify for 100% bonus depreciation as it's based on the year the property is placed into service rather than the year that the study is performed. If your wife can qualify for REPS, that would help tremendously since you are a high income earner. What strategy do you utilize on your property? LTR? MTR? STR?

Here's an article with FAQs on cost segregation that you may find helpful:

https://www.biggerpockets.com/forums/51/topics/1113749-cost-...

Feel free to reach out if you have any questions.

Arn Cenedella · Answer

@Kristafer Nicaj

I’m skeptical you can now use cost seg on a deal bought in 2018.

The former 100% 80% in 2023 and 60% in 2024 bonus depreciation rules were for the year the asset was first placed in service.

Get CPA advice.

I’ll be interested to learn if one can retroactively get bonus depreciation.

PS Gettinf REP status is difficult. Meticulous time records must be kept. If one has another job almost impossible to get REP.

Can I benefit from a Cost Seg on existing multi-family once I have REP status

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