Cost segregation study? [real estate]

[Archipelago]

Hey there, I've got a rental property that I purchased in October 2020 for $250k. It's a 100 year old house that had a lot of deferred maintenance when I purchased it. I had all new boilers, windows and insulation put in. The boilers were 20+ years old. Some of windows were really old too, some of them single pane. There was no insulation present.

Roughly 1/3 section of the roof and the chimney are also currently in need of replacement ($10k ish worth of work for those).

I used standard depreciation in 2020.

Should I be doing some kind of cost segregation study to itemize depreciation and do better on taxes? And if yes, should I be hiring a tax professional for it?

Thanks!

[Archipelago]

@SeattleCPA  @seattlecyclone

[seattlecyclone]

Details like this on real estate are beyond my tax knowledge, sorry.

[Michael in ABQ]

I saw some of this for commercial real estate. However, it was usually pitched for projects in the millions of dollars - or at least hundreds of thousands. Some items may be pretty straightforward that they could be depreciated faster than 27.5 years. However, commercial real estate has a 39-year life so it made more financial sense to try and break out items with a 5-15 year useful life.

Here's a decent article I found on the subject: https://cxre.co/real-estate-investment/cost-segregation-for-accelerated-depreciation/

Bottom line, it may not be all that cost effective. Also, you will be subject to depreciation recapture when you sell the property. So I'd definitely spend a few bucks on a consultation with a CPA who has experience with residential rental property to see if the juice is worth the squeeze.

[Babybalrog]

You shouldn't need a cost segregation. All of those should qualify for accelerated depreciation and written off in year one. The roof and I don't know chimney could be 20+ year assets and need depreciation. These are simple for a RE Accountant to figure out.

[SeattleCPA]

Hey there, I've got a rental property that I purchased in October 2020 for $250k. It's a 100 year old house that had a lot of deferred maintenance when I purchased it. I had all new boilers, windows and insulation put in. The boilers were 20+ years old. Some of windows were really old too, some of them single pane. There was no insulation present.

Roughly 1/3 section of the roof and the chimney are also currently in need of replacement ($10k ish worth of work for those).

I used standard depreciation in 2020.

Should I be doing some kind of cost segregation study to itemize depreciation and do better on taxes? And if yes, should I be hiring a tax professional for it?

Thanks!

You could do a cost segregation. But first consider whether or not the partial disposition rules deliver the result you want:

https://evergreensmallbusiness.com/partial-dispositions-and-the-new-tangible-property-regulations/

BTW, the problem with cost segregation is that sure you maybe save taxes today... but if you someday sell, that earlier cost segregation may cause your income to bunch up so high you get hit with additional taxes (like net investment income tax, aka "Obamacare tax") or simply higher tax rates.