Real estate investors who are buying and holding long term and mid term rental homes should look at doing cost segregation to saving money on income taxes. I do a lot of studies for real estate investors across the country. We are doing a number of them these days for investors in the Upstate of South Carolina as well as in the state of North Carolina. Upstate CREIA and Carolinas Real Estate Investors Assocation are two outstanding investor associations.
If your property has a cost basis of around $200,000 or more and if you are planning to hold the property for at least another 3 years, it’s highly likely you will stand to benefit from doing a cost segregation study.
The costs will generally range from about $2,200 – $3,500 depending up the size and cost basis of your property and whether or not you’ll need to file an IRS Change of Accounting form 3115. The 3115 form is used to let the IRS know you’re moving from straight line to accelerated depreciation. It’s used all the time. In fact I think we draft about a 1,000 of these each year.
But if you own a property, you might end up saving $5,000 – $10,000 after paying for the cost of the study. This works if you’re profitable and having to pay taxes on your rental income, or if you are considered a full time real estate professional. If your expenses and standard depreciation already wipe out your income, then doing a cost segregation study probably doesn’t make sense to do.
