{"id":1071,"date":"2007-02-28T16:48:24","date_gmt":"2007-02-28T23:48:24","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=1071"},"modified":"2007-02-28T16:48:24","modified_gmt":"2007-02-28T23:48:24","slug":"understanding-why-depreciation-isnt-just-an-add-on-cost-segregation","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1071\/understanding-why-depreciation-isnt-just-an-add-on-cost-segregation\/","title":{"rendered":"Understanding Why Depreciation Isn’t Just An Add-on — Cost Segregation"},"content":{"rendered":"

What is cost segregation<\/a>? In a nutshell it’s the process by which an investor can increase the amount of total depreciation taken on each investment property. It will deal almost exclusively with the personal property which is part of the real estate. These personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs. This is usually the point at which investors begin to glaze over.<\/p>\n

Not so fast write-off breath.<\/em><\/p>\n

Once you fully understand the results of successful cost segregation, you’ll be a fan for life. The difference between what the average investor claims for depreciation and what’s actually available is staggering to most when they see it for the first time. If you want to try it out on your own, go here<\/a>. I strongly recommend though, that you hire a firm specializing in this process, as the IRS much prefers that approach.
\n<\/strong><\/p>\n

What’s the average? In my experience and in talking with various CPA’s over the years, the average taxpayer claims the normal building depreciation using the schedules requiring a 27.5 or 39 year life. Many will then add a few personal assets to the mix, but not nearly what is available to them.<\/p>\n

Take a $500K purchase of residential income property.<\/p>\n

Let’s say it was built a couple years ago, and you can support a land value of $100K. This results in the building being depreciated at $14,500 a year. Investors then will add a few items of personal property, depreciated over five years. Let’s say the average runs around $5.5K. They now have $20K in depreciation. At the blended tax rate of 33% state\/fed, this results in a tax savings of just under $6,700.<\/p>\n

However, if this investor takes advantage of cost segregation, his depreciation could increase dramatically. Typically, the engineers<\/em> will literally look at every single part of your property. This includes but isn’t limited to driveways, landscaping, exterior stairs, HVAC systems, and on and on. It’s common for them to find roughly 6-20% of the purchase price, including land, in new depreciation. (They often find much more than that.) Using this example that would mean give Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

What is cost segregation? In a nutshell it’s the process by which an investor can increase the amount of total depreciation taken on each investment property. It will deal almost exclusively with the personal property which is part of the real estate. These personal property assets include a building’s non-structural elements, exterior land improvements and […]<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-1071","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-real-estate","8":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":155,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/155\/how-to-turn-100-into-27000-in-eight-years\/","url_meta":{"origin":1071,"position":0},"title":"How to turn $1.00 into $27,000 in eight years . . .","author":"Greg Swann","date":"July 29, 2006","format":false,"excerpt":"That sounds like a late-night TV pitch, but it's actually possible in residential real estate. 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They did better than ok this year, don't\u2026","rel":"","context":"In "Real Estate"","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1015,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1015\/small-but-helpful-tip-practical-use-of-after-tax-analysis\/","url_meta":{"origin":1071,"position":2},"title":"Small But Helpful Tip — Practical Use Of After-Tax Analysis","author":"Jeff Brown","date":"February 9, 2007","format":false,"excerpt":"You're a married couple in your mid-30's living in your first home, bought five years ago. You've discussed your future, especially as it relates to retirement, and agree that real estate provides a much more predictable potential for capital growth. You have about $20K in your company retirement plans combined.\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1116,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1116\/the-carnival-of-real-estate-23\/","url_meta":{"origin":1071,"position":3},"title":"The Carnival of Real Estate . . .","author":"Greg Swann","date":"March 5, 2007","format":false,"excerpt":"...is up at Salt Lake Real Estate Blog. Host Nigel Swaby invokes a March Madness format. We entered Brian Brady's interview with Lenn Harley. Brian made it to the Elite Eight, but not to the Final Four. Next week's Carnival: The Phoenix Real Estate Guy. The Carnival of Real Estate\u2026","rel":"","context":"In "Blog Carnivals"","block_context":{"text":"Blog Carnivals","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blog-carnivals\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":18158,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/18158\/overnight-news-if-youre-looking-for-reliable-returns-the-thing-to-invest-in-is-tangible\/","url_meta":{"origin":1071,"position":4},"title":"Overnight News: If you\u2019re looking for reliable returns, the thing to invest in is… tangible.","author":"Greg Swann","date":"May 20, 2021","format":false,"excerpt":"I have been teasing friends about the vicissitudes of Bitcoin \u2013 how 12x last Friday can turn into 7x by today, and how people who talk about x-ing their \"investments\" are most often degenerate gamblers, losing slowly and lying about it. I'm not nobody's investment advisor, just not yours, but\u2026","rel":"","context":"In "Group Therapy"","block_context":{"text":"Group Therapy","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/group-therapy\/"},"img":{"alt_text":"Ya think it's easy?","src":"https:\/\/i0.wp.com\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-content\/uploads\/2020\/08\/BHBNewTopImage-300x225.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":4675,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4675\/some-details-on-the-wamu-buyout\/","url_meta":{"origin":1071,"position":5},"title":"Some Details on the WaMu Buyout","author":"Sean Purcell","date":"September 26, 2008","format":false,"excerpt":"In a comment to an earlier post I was sent the link to JP Morgan Chase's Investor Presentation regarding their purchase of WaMu.\u00a0 This was courtesy of Bob Wilson, whom readers may know for his many thoughtful comments here on BHB.\u00a0 I highly recommend reading it by clicking here, but\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1071","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=1071"}],"version-history":[{"count":0,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1071\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=1071"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=1071"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=1071"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}