For property owners - Cost Segregation Studies get you money back.

[Kyle Porter]

Hey y'all! I've been diving into the world of cost segregation studies and its pretty neat. TLDR - it accelerates depreciation and you greatly reduce the amount of taxes you owe. Let me know if you have experience with cost seg or you're interested in doing one! Cheers!

Via the IRS:

Cost segregation studies are most commonly prepared for the allocation or reallocation of building costs to tangible personal property. A building, termed "§ 1250 property", is generally non-residential real property (39-year) or residential rental property (27.5-year) property eligible for straight-line depreciation. Equipment, furniture, and fixtures, termed "§ 1245 property", are tangible personal property. Tangible personal property has a shorter recovery period (e.g., 5 or 7 years) and is also eligible for accelerated depreciation (e.g., double declining balance, bonus depreciation and § 179 deduction). Therefore, a faster depreciation write-off (and tax benefit) can be obtained by allocating property costs to § 1245 property

[Bill B.]

Yes. You’re simply pulling future deductions to the present. So as long as you believe tax rates and your taxable income will be lower in the future. And you don’t plan to sell in the next 20 years without exchanging there’s a slight advantage. 

The problem is for it to be helpful you have to have a high taxable income. And that means in the future you’ll have even higher taxable income pushing you in to higher brackets while your write offs were taken at lower brackets. 

And as mentioned you owe all the taxes back if you sell without exchanging. If you. Exchange, you’ve hurt the deductions you could have received from that property as well. 

If you’re doing it to get $50k off your taxes one time and pay higher taxes in the future. Make sure you have a need for that money today. Also make sure just borrowing the money as a tax deductible loan isn’t a better deal. 

Ps. Don’t forget as a California tax payoff you will be subject to their taxes and tax rate in the future even if you do an exchange out of the state. They’re “funny” like that. 

[Basit Siddiqi]

I normally suggest people have a conversation with their CPA before paying for a cost segregation study.

No need to pay for a study if you will not benefit from it.

[Julio Gonzalez]

Cost segregation studies can be incredibly beneficial for property owners depending on the property and tax payer situation. Here are some additional FAQs on cost segregation!

https://www.biggerpockets.com/forums/51/topics/1113749-cost-...

[Eric Williams]

Quote from @Kyle Porter:

Hey y'all! I've been diving into the world of cost segregation studies and its pretty neat. TLDR - it accelerates depreciation and you greatly reduce the amount of taxes you owe. Let me know if you have experience with cost seg or you're interested in doing one! Cheers!

Via the IRS:

Cost segregation studies are most commonly prepared for the allocation or reallocation of building costs to tangible personal property. A building, termed "§ 1250 property", is generally non-residential real property (39-year) or residential rental property (27.5-year) property eligible for straight-line depreciation. Equipment, furniture, and fixtures, termed "§ 1245 property", are tangible personal property. Tangible personal property has a shorter recovery period (e.g., 5 or 7 years) and is also eligible for accelerated depreciation (e.g., double declining balance, bonus depreciation and § 179 deduction). Therefore, a faster depreciation write-off (and tax benefit) can be obtained by allocating property costs to § 1245 property

179 is different from 168(k). 179 requires the active conduct of a trade or business which precludes property held for the production of income under 212.

Just a heads up.