Multifamily Investor Saves $127,000 Through Cost Segregation
I purchased a 24-unit apartment complex in Orlando for $2.8 million. My old CPA was depreciating the entire building over 27.5 years using straight-line depreciation. When I mentioned cost segregation to him, he said it was "too aggressive" and "not worth the risk." That advice cost me well over $100,000.
AE Tax Advisors performed a full cost segregation study that identified and reclassified a significant portion of the property into shorter-life asset categories. Appliances, carpeting, cabinetry, light fixtures, landscaping, parking lot paving, sidewalks, site utilities, and dozens of other components were all moved from 27.5-year property to 5, 7, and 15-year categories.
With bonus depreciation, those reclassified assets generated massive first-year deductions. Combined with my Real Estate Professional Status -- which AE Tax also helped me properly document and substantiate -- the paper losses offset other income on our joint return. Total tax savings: $127,000.
The cost segregation study itself was professional and thorough. The engineering team visited the property, took measurements, photographed components, and delivered a report that would withstand IRS scrutiny. AE Tax explained that cost seg studies have been upheld by the Tax Court repeatedly and are a well-established strategy -- not aggressive at all.
My old CPA's fear-based approach to cost segregation cost me six figures. If your accountant calls cost segregation risky or aggressive, get a second opinion from AE Tax Advisors. They will show you exactly what you are leaving on the table.