All Forum Posts by: Ryan Knapp

Quote from @Ryan Knapp:

I've gotten some estimates and a study and seeing wildly differing numbers as far as tax savings as well as cost. Just curious before I file using a study with potentially "stretched" numbers.

Cannot comment on costs. Can comment on tax savings. All estimates of tax savings by cost seg companies are generic hypothetical scenarios that make assumptions about your individual tax situation. The very same property with the same exact cost segregation study will produce different tax results for you and me, since our tax situations are not the same. The ONLY way to estimate your true tax savings is to have your own tax accountant do it specifically for you.

In addition, not all cost seg companies do their estimates in good faith. Some do what you politely labeled "stretching", and some go even farther into misleading. Here is a post showing examples: https://www.biggerpockets.com/forums/51/topics/831924-beware-how-cost-segregation-is-sold-to-you

Finally, the very concept of cost segregation is often misunderstood, as I explain here: https://www.biggerpockets.com/forums/51/topics/1075919-five-common-myths-of-cost-segregation-and-100-bonus-depreciation

Repeating myself, the only way to have an unbiased picture is to consult your own tax advisor.

@Ryan Knapp

I’m trying to say this politely.  You are locked in on your answer but not hearing the responses. 

Go ahead and do the cost seg. We can’t add anything to your thought process. All you showed above was the math behind cost seg and not the thought process. 

Who to trust. See responses above from other posts.  Ask who has done your type of assets more. All of them can do it, just who is more familiar with your MFH class.

Why more emphasis on commercial versus MFH?  Components of the investment and the irs rule limiting 1st year writeoff to assets with 15 year or less.  I’ll list several assets and you decide which are more common in MFH versus commercial.   
Parking lots and driveways, lighting, fencing, landscaping, security systems, doors, office equipment, equipment, vehicles, fan or exhaust systems, lifts cranes docks,   Etc.  Although a MFH may have some of the above, a commercial property will have a larger percentage thus the value of doing cost seg is greater than for a MFH.  

Your thought isn’t it always good to do a cost seg?  There are always no matter what the topic a bad or downside.    
A.  By year what will be your effective tax rate.  If lower up front you might want the depreciation expense later to offset higher tax rates.      B. You mentioned investments this year, but also from prior years.  If you do the cost seg for the investments from prior years you will need to file with the IRS a change in Accounting method.  Do you know if this is a good or bad idea?  Ask your tax accountant.  
The more info you bring to the discussion the better input you will receive.  C.  How long will you hold these assets?  

For more in depth responses pick one of your assets and do a quick breakdown by components with 15 year life or less.   Assign a value. Then let’s discuss.     

If your objective is to shelter income there are many other avenues that are easier than Cost seg, have more impact and you can continuously do.  That discussion is best served in a different type of forum.  

@Ryan Knapp

Already know what cost seg is for and how to achieve.  Please re read my earlier post.  What are the numbers you are using?  More info, the better input. 

@Ryan Knapp

In your financial plan what is your total investment cost?  How much is a rough estimate of the land?  Rough estimate of just the building?  Why is the cost seg such a critical part of your deal analysis?  How much tax affected benefit did you calculate?  

Quote from @Ryan Knapp:

It seems that you're more in need of a second CPA opinion rather than the best cost segregation company. If your CPA has not seen cost segregation results for residential - maybe he is not up to speed when it comes to investing. It is certainly possible with residential.

Whether it is beneficial for your situation is also a CPA's call, so it's worth to get a second opinion from a real estate specialist. You mentioned "A key component of my real estate strategy involved cost seg studies, claiming REPs and accelerated depreciation to shelter a large amount of active income." - which may or may not be feasible in your case. This is where you really need to start.

What type of property?  What is the cost basis less land?  How long do you plan to hold the property?  1 year writeoff starts to go away 20% per year starting next year.  Did you build the property or buy? If you bought ask them for a detailed cost breakdown.  Use this as a starting point.

If you needed brain surgery would you focus more on price or specialization? Something as in depth as cost segregation (which pays for itself in tax savings) is worth investing in up front. I would also encourage talking with your CPA to get everyone on the same page.

@Ryan Knapp 

While it may seem like a simple concept, it's actually a very complex process that requires significant documentation as well as specific methodologies. If the proper reports and documentation are not completed, you run the risk of failing an IRS audit and the cost segregation not being honored. Here's a link to the IRS website noting specific items that are included in the cost segregation study report. As Bonnie mentioned, an engineered cost segregation study is the most preferred by the IRS. It requires a site visit and takes a much deeper dive into your property and should provide even more tax benefits. In today's world, it's hard to decipher what is a good deal and what isn't. I like to go off the old adage "if it sounds too good to be true, it probably is" and "if it's cheap, there's probably a reason why." I don't know which companies you received quotes from, but it's unlikely that you are receiving the same value. With them being so significantly different, I'd recommend getting a few more cost segregation quotes to help you decide.