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Cost segregation can be applied to investment properties, such as rental homes and income-producing properties. However, your primary residence is not eligible for this tax strategy. On the other hand, your second home may qualify if it’s part of a rental pool when you’re not using it, and you personally occupy it for less than two weeks each year.
From the IRS’s perspective, investment properties, including houses, fall under the same asset class as office buildings, retail spaces, apartments, or warehouses. These properties are considered real estate held for the purpose of generating income through cash flow and depreciation.
Starting at $500 without a site visit and starting at $1,500 with a site visit, cost segregation has become affordable for single family rental home owners. Discounts are available for bulk assignments. There are reasonable exclusions; a 10,000 SF mansion owned as a rental would not qualify for a $500 fee. The use of A cost Read more
Our method includes engaging with you to obtain as much data as is readily available to you. In addition, we have a national database of real estate and related data on prior single family cost segregation reports and access to high resolution aerial photography to study the property. For those who Read more
We are more concerned with providing you a credible report, conducted with a reasonable methodology and resulting in a quality and highly reliable report than with simply utilizing a “cost seg calculator” to make the report quick and easy. It is important to us that you can depend upon the results, and our Read more
Cost segregation for houses is a relatively recent concept. Minimum fees for single-family rental properties were $3,500 a few years back. A cost-effective methodology was created that would deliver value to clients while keeping expenses manageable.
At O’Connor, we’ve addressed this challenge and can typically allocate 20% to 50% of a property’s cost to short-life assets (5-, 7-, and 15-year classifications). When paired with the bonus depreciation introduced by the 2017 Tax Cuts and Jobs Act, this approach often leads to impressive financial outcomes.
| Property Type: Residential |
| Total Improvement Basis: $150,000 |
| 35% Short-life Property |
| Total short-life property results: $52,500 ($150,000 x 35%) |
| With a 30% tax rate and the 80% bonus depreciation available for the year 2023, the estimated tax savings in the first year would be approximately $12,600. |
| Fee Without a Site Visit: $500 |
The payback ratio for the first year on a house exceeds 25:1. In other words, the tax savings in the first year are over 25 times greater than the cost of the cost segregation study.