All Forum Posts by: Bonnie Griffin Kaake

1. If cost seg gives you more deductions that you can use in the year the study is done, yes, you can roll it forward until you use the entire amount. 

2. Current rental becomes your primary residence...you need to discuss this with your CPA/tax professional. You may have recapture tax to pay but it should be less than the original amount you received. Also, you will not be entitled to on-going depreciation once you move back in. 

3. STR - This is a complex question and timing, occupancy date, and what is being done in the rehab process are critical to answering your question and guiding you in the right direction.

4. There are no bad questions! Everyone has to start somewhere. When you do a 1031 on a property that you have done cost seg on, you will not have to pay recapture tax. At the same time, you can do another cost seg on the difference between your relinquished property and the new purchase in most cases. 

5. I include the expected ROI in my estimates. Talk to your CPA/tax professional and they can give you this information based on the study you received.

I hope this helps. 

@Dat Tien Vu  The best way to start is to get an estimate and ask a lot of questions. The IRS' preferred methodology is a quality engineering-based study. If you get more than one estimate, read the fine print and know what you are getting and that you are comparing apples with apples. So much can be hidden in the fine print. Don't make the decision strictly on price or what they TELL you that you will get just to get the work. Most legitimate companies will prepare a well thought out estimate for you at no cost and stand behind it. 

@Damian Callaghan   Have you considered doing cost segregation on the other properties you own? It is like getting a free loan from the IRS. If you didn't have Federal taxes to pay on the other properties it just might give you some wiggle room for further investing and leveraging what you do have. 

@Eric Don Don't forget to calculate cost segregation into your numbers. The tax and cash-flow benefits are quite significant. You may not have federal or state taxes to pay for a while. As you get closer to realizing your next step, whether that is purchasing a self-storage facility or building one, estimates that you can rely on are free. 

@Aron Rodriguez That is a beautiful area! Years ago I lived in Ashville about 6 blocks from the Blue Ridge Parkway. I only wish I had invested in RE back then! 

Be sure to do cost segregation studies on all your properties as soon as possible. The tax benefits are incredible and, for many investors, cost segs allow them to leverage the extra cash-benefits in additional properties. Estimates/pre-analyses cost you nothing! 

@Armen Ter Avetisyan  You are not alone in asking these questions. Many CPAs/tax professionals are still struggling with the same questions. There are situations, depending on your tax rate, where you can take up to $25K in losses against your W2, even if you don't materially participate or have to be a RE professional.

And, as long as you are using the STR for personal use 14 days or less per year, you can still use cost segregation to lower your taxes and increase your cash-flow.

STR tax issues are complex and you will want a very qualified cost seg company working with your CPA/tax professional to maximize your benefits. FYI, I just finished doing a 1-hour Continuing Education Class (CPE) last week on STRs to 253 CPAs.

1. Yes
2. You can do a cost segregation study on your property and take bonus depreciation depending on the year you purchased and put it in service. You do not have to have material participation to do that. But, unless you are materially participating more than anyone else or a real estate professional, it will be passive losses that can only be used against passive gains. 
3. Yes
4. Most do not use or focus on using local companies. The most experienced companies are national and are very competitively priced. What is the cost of an audit? The difference in price (if any) between a quality engineering-based study with audit protection and the cheapest, is not worth the risk. 

Free: ask questions and get estimates. Understanding what you are getting for the cost of the study is well worth the small amount of time you need to invest.   

 If you are getting a study done by the "desktop" method, that is not a "quality" cost segregation study which requires an on-site inside and outside property review. You can get an engineering-based study for about the same price and it will be done in the USA with audit defense at no extra cost. 

@Spencer Dixon  Yes, Spencer, you can do cost segregation and accelerate that depreciation going forward, most likely as a RE Professional. And, the best part is that if you started renting the property between late 2017 and Dec. 2022, you will get 100% of that depreciation up-front/first year the study is done. You will need the change of accounting form 3115 481a completed to change from straight-line to accelerated but we do that for you and your CPA/tax professional. 

On the other issue, local for cost seg studies, it may not be in your best interests. The most experienced companies that do "quality" engineering-based studies work nationally, not locally. 

@Michael Mackney  There are additional considerations regarding doing the cost seg for 2022 versus 2023. Depending on your tax rate, if the paper loss created by a cost segregation study is $25K or less, you may take it against your active income as well for 2022. And, in that situation, you do not have to be a Real Estate Professional or materially participating. Your best option is to get the no-cost estimate and then discuss the results and how it fits your specific tax situation with a knowledgeable CPA/tax professional. This makes your decision easier and more clearly in your best interests.