Cost segregation for SFH?

[Doug Diamond]

So I keep hearing on different podcasts about the benefits of cost segregation and bonus depreciation for real estate investors. I just listened to a podcast that had an owner of a Cost Segregation company, and he said any property worth over $200k should at least be looked at to see if it's beneficial. Are any of you doing this with your SFH's? If so, was it beneficial, and is there a minimum home value that makes it worth while?

[Michael Plaks]

@Doug Diamond

1. You have short-term rentals, and your CPA indicated they are subject to passive loss rules. They may or may not be. I would recommend a second opinion from an accountant who specializes in real estate. If you're indeed subject to those rules and already maxed out on allowable losses, then there is no point to do cost seg.

2. You also indicated you're not a real estate professional. Again, a second opinion is something I would suggest. Maybe you can qualify. We cannot tell without a one-on-one detailed discussion. Hint: if you have a full-time W2 job and not married, then you cannot qualify.

3. If you do have room for more deductions, either by your short-term rentals being non-passive or by not maxing out on allowable deductions or by qualifying as a RE pro, then cost seg might generate some tax savings for you. Your CPA is correct that true cost seg is probably not cost-efficient, being in $2k-$5k range. However, there're online DIY options of pseudo cost seg in the $400 range. Not as good as the real thing, but may still be workable in your situation.

4. Cost seg is not magic. You accelerate depreciation that you would otherwise take anyway, just later. And when you sell, you have to pay it back. This works in your favor if you do not plan to sell soon or if you plan to exchange rather than sell. Basically, cost seg should be a part of your long-term strategy.