Can Cost Segregation be used for Houses?

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.

Why Does Residential Property Qualify?

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.

Why Hasn’t My Tax Preparer told Me?

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