As tax professionals know, cost segregation studies offer real estate owners many advantages by accelerating deductions, offsetting taxable income and generating significant tax savings. The process requires time, technical expertise and thorough data analysis. Typically, studies are completed by industry specialists and are beneficial for properties with a cost basis greater than $1 million. But now, owners of residential rental property with a building cost basis of $600,000 or less can look to KBKG’s Residential Cost Segregator® as a simple, cost-effective and easy-to-use solution that will generate cost segregation results in minutes.
Cost segregation for residential rental properties
Cost segregation is the most utilized solution to maximize real estate owners’ depreciation deductions. The studies are applicable to any property type or industry and are widely used for residential rental properties. Residential units and their buildings contain many features that can be classified as short-life personal property and often see 15-25% of the building value reclassified as a result of a study. Residential properties also come in many forms but generally contain the same elements: kitchens, living areas, bedrooms, bathrooms, etc. These realities were the force behind KBKG’s development of a solution for the residential industry, specifically the under-served smaller-value properties.
Residential properties are commonly divided into two groups: long-term and short-term rental. When a dwelling unit is occupied on a transient basis, it is considered short-term and subject to 39-year commercial classification. A transient basis is defined as a unit for which more than half the days the unit is occupied; it is occupied by a tenant who stays for less than 30 days (typically Airbnb-type properties). Both groups are prime candidates for KBKG’s Residential Cost Segregator® solution if the building has six units or less and a depreciable tax basis of $600,00 or less. The solution is capable of analyzing a variety of structure types including: single-family, multi-family, apartments, condos and townhomes.
How KBKG’s Residential Cost Segregator® can help
KBKG has designed its Residential Cost Segregator® to quickly identify and compute possible tax advantages for owners of residential rental properties. After answering a few questions and entering some essential property data, the Residential Cost Segregator® provides a report with several parts:
- The property’s component costs, arranged in a detailed schedule organized by tax class
- A depreciation schedule, exported as an Excel file
- A description of the property, along with other details you provide
KBKG’s Residential Cost Segregator® completes reports in approximately 15 minutes or less and is backed by the firm’s Audit Guarantee. While individual results may vary, most reports result in over $20,000 of additional deductions through the first five years of ownership. KBKG offers a video demo of this sophisticated tool on its website.
Powerful Tax Planning Tools
KBKG helps CPAs and tax professionals provide valuable tax solutions to their clients. For your next real estate investor client, start your cost segregation study with the Residential Cost Segregator® calculator from KBKG. You “try before you buy,” calculating a free estimate of potential tax benefits on the website. The full-cost segregation solution generates a custom report with valuable information. Use discount code “DWXHPO96” and get 10% off every residential cost segregation report for the next 30 days.
More KBKG Resources
KBKG provides many other resources to assist CPAs and businesses. KBKG’s tax professionals perform complete cost segregation studies for clients in a wide range of industries. Its Cost Segregation Savings Calculator can estimate federal income tax savings, net present value figures and more for traditional cost segregation analyses on larger value properties.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.