Andrew,

It sounds like you are wanting your cake and eat it too! There is a cost, either your time or your money.....the only reason it is costly to do depreciation segregation is that you are paying some accountant to do it for you. it does not have to be done by a professional or someone with a masters in accounting. you just have to invest some of YOUR time into determining the reasonable value of the contents of the property that depreciate at a faster rate than the structure itself. All appliances, fixtures, carpeting, water heater, air conditioners, furnace, fence, garage door opener, etc. have much faster depreciation schedules. Reasonable values for these are not hard to estimate. Just make sure they are subtracted from the basis of the property itself.

I use TurboTax, which makes this process very easy. it easily sets up depreciation schedules for segregated property for each rental,and even helps determine the correct depreciation rate for each.

Andrew, your lawyer was talking about a cost segregation study.
It involves identify and separating short life assets from your new property basis and depreciating them separately, thus accelerating depreciation. For example, you can depreciate a 200k property over 27.5 years, OR Using cost segregation, you determine that you have 20k in 5-year assets within the home(carpet, fridge, AC, etc...) You can depreciate the 20k in assets over the next 5 years and depreciate the 180k for the property over 27.5. From the assets alone I increase my deduction by 4k a year for the next 5 years.(the house depreciation deduction doesn't get much smaller going from 200k to180k) This allows you to get a larger depreciation deduction, so you have more money now and not over the next 27 years.
From my understanding, you've known what to do all along, you just don't know how to go about doing it. Normally I would tell you to talk to your tax man, but unfortunately they dont always know everything either and they charge you anyway. And cost segregation isn't the cheapest thing in the world. My recommendation would be to do more research, and try visiting DepreciateEm.com. That's what I tell all my clients. You can do your own form 4562 and print it out for free to give to your accountant. That way you can accelerate your depreciation while limiting your tax preparation fees. Hope that helps.
Chris Novak

hi

it means instead of useing the same amount every year as in straight line dep. you will use more in the earlier years then in the later years. its good if your planning on selling it before you hit the half way mark . other wise i would say stay with straight line or you will have smaller deductions in the later years.

hope this helps

Actually, I looked into the subject a little more...My lawyer was referring to something that is also know as a cost segregation analysis. It involves identify and separating short life assets from your new property basis and depreciating them separately, thus accelerating depreciation.
For example, you can depreciate a 200k property over 27.5 years, OR
Using cost segregation, you determine that you have 20k in 5-year assets within the home(carpet, fridge, AC, etc...)
You can depreciate the 20k in assets over the next 5 years and depreciate the 180k for the property over 27.5. From the assets alone I increase my deduction by 4k a year for the next 5 years.(the house depreciation deduction doesnt get much smaller going from 200k to180k)
This allows you to get a larger depreciation deduction, so you have more money now and not over the next 27 years.

My problem is that I did not want to go through the hassle or pay someone to have to appraise my assets, generally a cost segregation analysis is quite pricy and that is why I didn't want to involve any "paid" experts.

Someone actually told me about a site (DepreciateEm.com) where you can do it on your own and its free. It seemed kinda sketchy so I don't know how I feel about it. I used the application it and it seemed to have worked, printed out my 4562 and everything. I plan on meeting with my lawyer this weekend so we can compare and see if the output is legit. I think I'm gonna wait around until I've talked to some people that have used this website because I cannot afford to do it otherwise.


Andrew Bitler