Additionally there is an opportunity cost associated with this since whatever extra money you allocated towards principal only payments are not available to be used without refinancing or selling.  

Toss in some more details.I will add that a lot of new investors, and some not so new investors, under allocate expenses.   

If he also lives on the ranch then a certain % of that property could be allocated as his primary residence. 

Using the example above, the cost segregation allocations apply to “net tax basis” of $1,200,000 ($700,000 carryover + $500,000 excess basis).

When house hacking, you need to allocate expenses and income based on the portion of your home used for rental purposes versus personal use.

I was originally planning to put all my monthly returns to pay down the HELOC as quickly as possible so that I can get into the next property but am worried about how to deal with paying the taxes if I don't allocate any of the returns to the side.

In a similar fashion, if you can imagine how much landscaping and underground infrastructure is in a golf course as compared to the clubhouse, that will give an indication of why an extremely high percentage of the property's value is allocated to the land improvements. 

You may allocate the proceeds any way you want as long as you purchase at least as much as your net sale and use all of the net proceeds to defer all the capital gains tax. 

It may be more for your property which will already negate your cash flow without anything being allocated for repairs, vacancy, and CapEx.

I am more than happy to share my preferred lenders that specialize in investment properties, home inspectors, contractors, landlord and builders risk insurance carriers, and CPA's that know to do cost allocation studies with my investor clients (that's how you know you have a CPA that knows real estate investing accounting).