Cost Segregation Good or Bad? It Depends.

If the subject property value is less than $500,000 then it may not be worth it.  This is just a rule of thumb.

It benefits full time real estate professionals who can use the depreciation to offset gains.  So sorry to all the Self-Directed IRA investors you get almost no benefit.

Depends on the type of real estate asset and profitability to see the benefits of cost segregation.

Syndicators usually do a cost segregation study as one additional way to provide a higher level of service to investors.  It’s another tool in a syndicators tool bag to give the syndicator an advantage and add value.

I am by all means no cost segregation expert but this short video helps explain what a Cost Segregation Study is:

PRO

• Increase current year depreciation expense for current year and near future years which results in a decrease of taxable income.
• Increase in Cash Flow
• Deferral of Taxes
• Ability to reclaim “missed” depreciation deductions from prior years

CON

• Pay for a company to perform the study (small expense in the bigger picture of things)
• CPA’s may charge additional for complicated tax situation
• If not current profitable, the extra deductions are meaningless
• For Self-Directed IRA investors they can’t realize the tax benefit
• Recaptured at sale of property

So is it worth it?  You decide.

Please note that this video and content is for educational purposes only, please consult your legal and tax advisors for your specific situation.