[John]

For your real estate folks, can you help me better understand “cost segregation?” It seems like a no brainer, so it makes me think:

what’s the catch?

Cost segregation is a tax strategy that allows real estate owners to increase cash flow by accelerating depreciation on certain property components.

While this can lead to significant tax savings, it’s important to understand the potential complexities and risks involved.

Are there hidden pitfalls or downsides associated with implementing cost segregation?

For example, how does it impact long-term tax liabilities, property resale values, or financing options?

Additionally, what are the best practices for conducting a cost segregation study to ensure compliance with IRS regulations?

We’d love to hear your thoughts and experiences with cost segregation in real estate. Have you or someone you know utilized this strategy?

What challenges did you encounter, and how did you navigate them? Your insights could be invaluable to others considering this approach.

Please share your perspectives and any advice you may have regarding the benefits and drawbacks of cost segregation in real estate investments.

[Ian]

It doesn’t make sense to do unless you have lots of income to offset. It’s kind of like the difference between taking a standardized tax deductions vs an itemized deduction.

When its itemized it can be more specific and you can find more ways to take deductions, but the overhead/complexity/cost of it doesn’t make sense to take on unless you have an income threshold that would justify it.

Lots of people use a bar of about 200k-300k of w-2 income as being the beginning of the threshold where cost segregation might make sense.

[Shawn]

The study costs money and you may not be able to utilize the additional depreciation due to passive activity loss rules.

It also lowers deductions in later years.

This strategy is best used by real estate professionals with high levels of ordinary income in the current year.

[Author]

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