Maximize your rental losses and increase your cash flow with cost segregation studies

A cost segregation study is a detailed analysis performed by an engineer that (a) breaks out your property into various components of different asset lives and (b) allocates a value to those components based on your property purchase price/basis. As a result, a cost seg accelerates depreciation in early years by depreciating certain assets over 5,7 & 15 years rather than depreciating the full building value over 27.5 or 39 years.

You need to discuss with your tax professional if a cost seg would be beneficial for you but in general, a cost seg would be advantageous in the following instances:

• The value of your building is significantly larger than the value of the land: Land doesn’t depreciate so if most of your property value is in the building, you could take advantage of higher depreciation with a cost seg.

• You placed an asset in service between 2017 and 2022: If you did, you can take advantage of 100% bonus depreciation on your shorter lives assets and increase your cash flow. Tip: If you need more cash flow this year and placed a property in service between 2017 and 2022 , check with your tax professional if you can benefit from the 100% bonus depreciation.

• You qualify as (a) Real Estate Professional (REPS) or you own short-term rental properties AND (b) materially participate in your rental activities : With a cost seg, you can create larger rental losses that would offset your active income, and therefore reduce your taxable income.

•  You do not qualify as REPS nor own ST rentals but you expect significant gains from the sale of your passive investments such as stocks, crypto or rental properties: You can offset your large gains with larger rental losses.

Would you like to know how a cost segregation could benefit your real estate business? Book an appointment at www.lobecpa.com!