I have been investigating having cost segregation studies done to two STR investments I own. I'm getting some pushback from my CPA of several years. He is a former IRS auditor, before going out on his own. He is definitely more conservative in his advisement, but seems willing to go along with defensible positions that fall within the tax code. We are taking advantage of two new tax saving opportunities that require some additional research and paperwork on our end. We provided that and he was happy to get on board with those strategies. But, he seems very concerned about the prospect of doing Cost Segregation for the depreciation on these two properties. Our original and adjusted basis on each property falls in the $400s and the Cost Seg studies are being quoted in the mid-$2,000 range per property. Our CPA has suggested that Cost Seg is for investors with millions invested in real estate, and more predominately on the commercial RE side. He has suggested that this may be more of a red flag to the IRS. Furthermore his point is that regardless that this is likely defensible, that IF there is an audit the cost (and/or time) of an audit defense may outweigh the benefit of the cost seg. However, with the bonus depreciation (maybe not the correct terminology) it appears to accelerate the depreciation and make the up front savings very significant.

And additional detail that is important / relevant is that I am a full-time licensed real estate broker. I have a hard time imagining that I would not meet the qualification of "Material Participation in Real Estate" as a real estate professional, which would allow me to apply the bonus deprecation toward my earned income as a real estate professional. I still need to look up the IRS guidelines around the qualifying real estate professional. But, part of his point is that IF I do not qualify, it may be a long time before I can take advantage of those losses from the bonus depreciation anyways. Overall, he seems to want to do a basic cost seg for me on the FF&E and Capital Improvements and leave the original basis of the property on the conventional depreciation schedule.

I would love some feedback, personal experience, thoughts on this matter. I need to decide pretty quickly to file for 2023 or file extension and order these cost seg studies.

Denver, Colorado

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