When does it make sense to do a Cost Segregation?

[Pavan K.]

I'm new to investment and rental properties. This will be my first year filing taxes which will include 1 rental property. 

i do my own taxes since it's straight forward with one W2 and now a investment property. 

Would like to understand if a cost segregation is necessary in my case. 

Single Family home ,Property value $600k ( rounding off for easier calculations) land value $50k . Property was in service( for rent ) since October 2024 but was vacant until Jan 2025. 

i reached out to a CPA and was told I need to get a cost segregation study done in the first place which would cost around $5000 and also told it's not mandatory  to get it done. But all the articles I read , says it's best to use cost segregation(which will eventually be recaptured when sold or do a 1031) Given it's vacant for 3 months in 2024 . Do I really to get a cost segregation done ? 

Thanks much 

[Natalie Kolodij]

Quote from @Pavan K.:

Quote from @Natalie Kolodij:

Several notes: 

1. $50k land value on a $600k property sounds very low / possibly incorrect 

2. That price for a cost segregation study is on the high end for a single family home 

3. "I would need to get a cost segregation study done  in the first place" Need to get it done for what? 

4. Without a cost segregation you depreciation the building value of your property across 27.5 or 39 years. It's not required in any way. 

With a cost segregation study your building value will be broken out into many detailed components which will have lives of 5,7,15 and 27.5/39 year  lives instead. Allowing you to accelerate some of the depreciation. (and utilize bonus depreciation on the assets with lives of 20 years or less)

5. Possibly most important: can you utilize any losses generated by the rental property? Or will you be subject to the passive loss limits? 

Without a specific use for losses generated; utilizing a cost segregation study to generate large losses you can't use won't benefit you. 

- Are you or your spouse an IRS real estate professional? 
- Is this a Short-term rental? 
- Do you have other passive income sources? 

-Is your Adjusted gross income under $100k which would allow you to use some amount of passive losses?

Thank you Natalie.

1. $50k land value on a $600k property sounds very low / possibly incorrect.  " 

"This is a new suburb,mostly farmlands ,converted to residential zone . I did check county records for the land value."

2. That price for a cost segregation study is on the high end for a single family home. 

" Noted. I'll shop around,when its time " 

3. "I would need to get a cost segregation study done in the first place" Need to get it done for what?"  

    " I might have understood it incorrectly. The study needs to done for tax filing purposes?"

Unfortunately, we don't qualify for RE professional and this is a long term rental. Was hoping to find if cost segregation could offset or reduce tax liabilities on W2 income , which looks like it won't unless we are RE pros or it's a short term rental. Kind of in the higher tax bracket and finding ways to reduce our tax burden .

Not needed for tax purposes or really recommended unless there is a specific use for generating losses. 

You can't use the losses against your W2 income-so generally a cost segregation study won't help you. 

And on the land value- is $50,000 the amount the county had listed? 

You'll want to use the same % ratio between building and land; not the actual amount/value listed.