Jump to LP to get more depreciation?

[Mark Payne]

I am currently trying to buy one $400k single family rental in my area of Sacramento, CA every few years. I am currently just deprecating on basic 27.5 years. I am starting to generate more passive income from another business which gives me more need for more upfront depreciation. My question, are cost seg studies really $5k-$10k? Do most people just figure it out through their CPA?

What I’m thinking is would I be better off just investing $100k as a LP through a reputable syndicator to get easy bonus depreciation upfront, or should I continue to do what I’m doing and just hire someone to do a cost seg. So I can bonus depreciate. I see myself going more and more passive in real estate as I get older.

Very new to how bonus depreciation actually works. I’m not “real estate pro”, so only need depreciation to offset my other passive income. For the time being. Thanks for any insights!

[James Kojo]

Hi, @Mark Payne

I'm not a tax professional, but I'm very familiar with cost-segregation and deprecation from an investor point of view.

For a SFR the cost of a cost-seg often times outweigh the benefits. However, in CA or other high-price point markets, it may make sense, especially if you have a portfolio of SFRs. I have have commissioned cost-seg studies for 3 SFRs in NorCal.

Indeed, i did pay between 3-5K for each.

With regards to the CPA question: No, I wouldn't rely on your CPA to provide a cost-seg analysis. You will want an independent cost-seg report from a professional co that provides that service. It may be possible to get a CPA who would give you an opinion on the depreciation breakdown, but it's not likely to hold up in audit.

The bigger question for you though, is whether or not you would benefit at all from bonus depreciation. My understanding (here you need to talk to a CPA) is that there is only a certain class of folks who can claim more than a certain amount of losses from depreciation. Research the "Real Estate Professional" clarification in the tax code. The short story is: if you both you and your wife have a regular 9-5, W-2 job, it's hard to qualify for the added depreciation benefit.

Hope that helps.