Cost Segregation Studies
| Content
| What is a Cost Segregation Study?
A cost segregation study involves an analysis of your rental property by qualified engineers with the goal of breaking your property into smaller components with shorter depreciable lives. Shorter depreciable lives, particularly with 100% bonus depreciation currently available, mean greater depreciation in the early years after the property is purchased or the cost segregation study is completed. This powerful tool for accelerating depreciation can result in serious tax savings when used correctly.
| Who Can Benefit From a Cost Segregation Study?
While almost anyone who is eligible to claim depreciation on a rental property can accelerate depreciation with a cost segregation study, cost segregations will only reduce tax liability in a specific tax year where you expect to have passive income that can be offset (e.g., net income after depreciation from rental properties or a gain from the sale of a passive rental) or if you have the ability to use any losses generated from additional depreciation to offset other types of income. Otherwise, you may just wind up with suspended passive activity losses without an immediate tax benefit. Three situations enable a taxpayer (or their spouse) to offset rental losses against other types of income. Read more about those situations at the following links: 1) Active Participation Rental Real Estate ($25,000 limit with qualifying income level), 2) Qualifying Short-Term Rental, and 3) Real Estate Professional Status.
| Is it Too Late for a Cost Segregation Study?
If your situation changes and you can benefit from a cost segregation study in a different year than when you purchased your rental property, it's possible to catch up depreciation in the year that you benefit. For example, if you bought your property last year but you didn't meet the criteria for Real Estate Professional Status until this year, Hoboken Financial can help you file the right tax forms to claim the additional depreciation this year--otherwise, your opportunity to generate tax savings may become limited.
| What Will Be Next Steps if I'm Interested?
If you're interested in a cost segregation study, we'll send you a link to our third-party cost segregation partners. They'll request information from you and generate an Estimate of Benefits along with a proposed cost for the study. We'll use their results to advise you on whether investing in the study makes financial sense based on your tax situation. You'll have no obligation to pay anything unless you want to move forward with a study. Our cost segregation partner will then work with you to schedule a site visit or remove visit depending on what services you choose, and they'll generate a final report that Hoboken Financial can use to claim the additional benefits on your return.
