- Hey folks, Brandon here
from The Real Estate CPA.
Today we're going to be talking
about cost segregation studies.
Cost segregation is the
process of breaking down
your real estate into separate components
and then assigning each one
of those separate components
a value.
The purpose of a cost segregation study
is to understand what the value
of every component of my property is.
So I want to know what
the value of my roof is,
what the value of the carpet is,
what the value of the
tree that is planted out
in the front yard is.
That's what a cost
segregation study does for me.
And if I do this in the first year
that I buy the property,
then I get to 100% expense
via bonused appreciation
any component of my property
that has a useful life
of less than 20 years.
Now personal property
and land improvements
all have a useful life
of less than 20 years.
So if I have a cost
segregation study performed
on my property and it assigns
5,000 bucks to the carpet,
1,000 bucks to the tree outside,
I get to write it all off immediately
rather than depreciate it
over 27 and a half years
like most investors have to do.
Another benefit of a
cost segregation study
is that even though I'm assigning value to
like the roof, and that
roof is still depreciated
over 27 and a half years,
by assigning a value to the roof,
whenever I go to replace the roof,
I can write off the assigned value.
Compare that to replacing a roof without
a cost segregation study.
All you get to do at that
point is just add the value
to your 27 and a half
year depreciation basis.
Now a lot of people ask
if they can do cost segregation
studies by themselves,
and the answer is yes,
but you're not going to
be nearly as detailed
as a professional cost
segregation study will be.
A professional cost segregation study
is going to go as far as
saying parts of the electrical
and the plumbing that feed
the personal property assets
within your property are also
considered personal property,
whereas normally the
electrical and the plumbing
is structural components depreciated
over 27 and a half years.
So if you do a cost
segregation study by yourself,
you can totally break out
things like the square footage
of the carpet, you could
look at the model number
on your appliances, and look
up what the value is online,
and you could do a mini cost
segregation study that way.
You're not going to get
anywhere near the benefits
of what a professional cost
segregation study will give you.
Now we recommend doing a cost
segregation study in year one,
especially with the new 2018 tax laws,
because again, I can go buy a
one million dollar property,
get a cost segregation study,
and maybe 30% of my value
has been allocated to components
with a useful life of less than 20 years,
so on a one million dollar property,
that means I get to write
off $300,000 immediately
this year, which is way
better than depreciating
that one million dollars
over 27 and a half years.
If you have questions on
cost segregation studies
or depreciation in general,
hit us up at therealestatecpa.com.
We're more than happy to help.
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