Cost Segregation and Bonus Depreciation on Taxes

[Sam Levin]

I recently attended a class on advanced tax strategies for real estate investors. As we all know the standard "straight line" depreciation allowance from the IRS is a 27 year depreciation schedule on residential investment properties and I believe that it is 39 years for commercial property. This is a great tax benefit to real estate investing in and of itself. What most investors and even their CPAs don't seem to know is that a large portion (25-40%) of the cost of these investments can be classified as 5, 7 or 15 year depreciation property. This allows the investor to take a much bigger ded

[Jake Hottenrott]

@Sam Levin you are correct in stating that cost segregation studies can be very beneficial to to the knowledgeable investor.  The trick is that your technique and logic must be very well documented and must be done in a manner approved by the IRS.  Providing information to other investors can be very valuable, but be careful about the manner in doing so.  The tax and penalty ramifications of having a cost segregation done improperly and disallowed partially or in whole by the IRS can be significant.

@Natalie Kolodij hits the nail on the head that many of the CPAs and EAs on these message boards use these type of studies regularly to help clients where applicable. If you meet with a REI focused CPA, this is the type of value that can be provided to you. A general tax CPA may not encounter this regularly. Many of us have contacts that do nothing but cost segregation studies nation wide and would be happy to provide those contacts to you on request.

Also, not to be nit picky, but I'm a CPA so attention to detail is a must.  The depreciation life of a residential real estate asset is 27.5 years.