I picked up a duplex last year and my CPA mentioned it to do a cost seg for the property. Was it worth it on a smaller property and any professionals that perform this service that you recommend?
Investors who own smaller multifamily are you actually using cost segregation or skipping it?
byu/kitty81877 inrealestateinvesting
Posted by kitty81877
3 Comments
Yes, it’s worth it if you can make use of the depreciation. But 2024 properties have a 60% limit on bonus depreciation. Back of the napkin you could see 60% of 25% of your purchase price as a deduction.
Great question, I handle books for several real estate investors, and I’ve seen both sides. Cost segregation can be worth it even on smaller multifamily if:
* You plan to **hold the property long-term** and want accelerated depreciation now to free up cash flow.
* You have **other passive income** (or active real estate income) that the losses can offset.
* You’re in a higher tax bracket and need deductions sooner rather than spread over 27.5 years.
That said, the upfront study cost sometimes eats the benefit on smaller properties. I’ve seen duplex/triplex owners skip it because the ROI wasn’t strong enough, while others did it and saved thousands in year one.
I’m not a US CPA, but as a bookkeeper working closely with investors, I usually recommend running the numbers side-by-side (with and without a cost seg) to see if the tax savings outweigh the study fee. If you’d like, I can point you toward professionals I know who specialize in these studies and also help keep your books aligned with the depreciation schedules once it’s done.
In my opinion, the deciding factor is very dependent on personal situation and long term tax strategy. If you’re in the 10 or 12% bracket, it’s a no. In the 20%s, it gets very personal. In the 30%s, probably makes sense if the tax savings is enough to justify the costs associated with doing a cost seg.
It can get nuanced for every individual situation, but these are the rules of thumb that I start with and adjust from there.