2018 Tax Law Impact on 1031 Exchanges/Cost Segregation

[Brian Schmelzlen]

The new tax law made it so that the gain on the sale of personal property can no longer be deferred through a 1031 exchange (1031s can now only be used for real property).

Likewise, the new tax law made cost segregation studies far more valuable in the short-term by increasing bonus depreciation from 50% to 100% on property with a useful life of less than 20 years.

However, in essence what cost segregation studies do is transform a portion of real property into personal property.  This is a great short-term benefit, but what impact will it have on future 1031 exchanges.  Do you think the IRS is going to rule that the personal property components affixed to the real estate in a 1031 exchange are "other property" and thus boot, or ignore it?

Some of my REI clients are grappling with this, and I am still of the opinion that they should still do the cost seg studies if there are large enough short-term savings and they are planning on holding the property for an indefinite amount of time, but I am curious about other views on this.