All Forum Posts by: Christian Block

 I agree, you will need to file a change in accounting method if the property has been previously placed in service and depreciated. The “extra” depreciation you take from the cost segregation will be a 481a adjustment and will need to show the calculations on Form 3115. It’s fairly common and most CPA’s should be familiar with how to do this.

There is a safe harbor for property held for productive use in a trade or business.  See "Section 4. Application"

https://www.irs.gov/pub/irs-drop/rp-08-16.pdf

I would reach out to KPKG.

As Basit indicated, the treatment of your rental depends on several factors, include average rental days, personal use, and your level of participation.  Assuming you qualify to treat your rental property as a short term rental business, the income or loss will be treated as ordinary.  

One other large deduction you get to take is depreciation on the building and other qualifying property used in the rental.

 I agree. My response was based on the premise that doesn’t work.

This is a case of having your cake and eating it to, so to speak.  You can't lock in your section 121 exclusion and simultaneously convert your primary residence to business use forever.  

Per the IRS " In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale."

You can convert to business use for a period of time, and still take the exclusion if you meet the requirements.  If you fail to meet the test quoted above, I think you lose the exclusion.

No income tax in Wyoming, so no Wyoming state income tax return. But, it is not a community property state, meaning you are and your wife are partners in the LLC. I think all of your activity possibly (likely?) rolls up into a 1065 partnership return. Obviously, check with your CPA.

As suggested, I think the size of the property is a bit irrelevant.  

One very important point is if your real estate activity is passive or ordinary.  If you have passive income you are looking to offset with your passive real estate activity, a cost segregation might make sense.  If you do not have other passive activity other than your passive real estate activity, creating a loss with a cost segregation will only create a passive loss that you, likely, will not be able utilize in the year of the cost segregation and will carry forward.

If your real estate activity is ordinary because, for example, you qualify as a real estate professional, the loss created by the cost segregation can offset other ordinary income, creating an immediate tax benefit.

This is definitely something you want to discuss with your CPA.  

In our practice we have used quite a few cost segs from KPKG (just one example), which are calculated using software.  They are not as robust as having an actual engineer come out to preform the cost segregation, but are much less expensive; probably $600-$1,000.  We are comfortable using these on residential properties (they generally error on the conservative side), but for a commercial property, or even a multi-unit residential property, I think you want the cost segregation performed by an actual engineer.

Wyoming isn't a community property state so they might need to file a 1065 return. I think that probably works, it isn't unusual to have multiple LLC's in one entity. But it wouldn't be a bad idea to confirm with an attorney this satisfies the protection you are looking for. Did you use an attorney to set up the LLC's?