Cost Segregation for Houses?

Yes, cost segregation can be used for investment property, often including rental homes and most second homes. Your primary residence does not qualify for cost segregation. Your second home qualifies if it is in a rental pool when you are not using it and you use it less than two weeks annually.

Why Do Homes Qualify?

Houses held for investment are treated as the same asset class as office, retail, apartments or warehouses from the IRS position. They are real estate owned for the purpose of generating income from cash flow and depreciation.

How much does it cost?

Typically $500 without a site visit and $1,000-$1,500 with a site visit. 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. $500 works for about 98% of homes, and it is much more than a “calculator”. A calculator is not an advisable means due to the chance for substantial error. On average it might be close to correct, but it will be much too high or too low in some cases.

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 data on prior single family cost segregation reports and access to high resolution aerial photography to study the property. For those who choose to omit the site visit, if we don’t feel we can do a credible job without a site visit, we will conduct a site visit at our expense.

We are more concerned with providing you a credible report, conducted with a reasonable methodology and resulting in a credible and reliable report than with making it simply a “cost seg calculator”. It is important to us that you can depend upon the results.

Why Hasn’t My Tax Preparer told Me?

The concept of using cost segregation for houses is relatively new. Two years ago, our minimum fee for a single family rental unit was $3,500 per house. Breakthrough thinking was required to develop a methodology benefitting the client at a cost efficient price. We have solved that problem and can usually allocate 20 to 50% of the cost of a house to short life property (5-, 7- and 15-year). With bonus depreciation the results are incredible.

Example: Consider a house with a total cost of $150,000 and 35% short-life property. The total short life property would be $52,500 ($150,000 x 35%). Assuming a 30% tax rate, year-one tax savings are $15,750. The fee without a site visit would be $500. The year-one payback ratio for a house is more than 30:1. In other words, the year one tax savings are more than 30 times larger than the cost of the cost segregation study.