Cost Segregation On SF

Has anyone done a Cost Segregation (sometimes called Chattel Appraisal) on a single family home as a tax strategy?

Apparently, a court case called Hospital Corporation of America ****Must participate a while before posting URL's***. [109 TC 21(1977)] makes all this possible. This case rules that it is permissible to separate Section 1245 Property from Section 1250 Property. After the case settled, the IRS issued an Audit Techniques Guide****Must participate a while before posting URL's***,,id=108149,00.html) on cost segregation. In this guide, the IRS
describes several methods for determining the value of Section 1245 Property. One of the methods is the “Residual Estimate Approach.” This is the method employed by such companies as Chattel Appraisal Services (www.yourchattel.com) to value and class, by tax life, 1245 Property.

Any thoughts?

For a single family dwelling, the tax savings you gain through accelerated depreciation is usually not worth the expense of a professional Cost Segregation Study.

For example, the SFR you want to place in service as rental has a ten year old refrigerator that has a thrift shop value of only $100 and a free standing range worth only $50. Each of these assets could be depreciated over 5 years if segregated versus depreciated over 27.5 years as part of the building structure.

What I usually do is just depreciate the entire structure and all the appliances, landscaping, and carpet as a single asset over 27.5 years. As I replace carpet or appliances, I open a new 5 year depreciation schedule for each replacement item using its actual cost to purchase, deliver, and install as the depreciaton basis.

I second Newkids advice - it's just not worth it for a SFR. Businesses often pass on it too because it is so expensive and it's a timing issue anyway. You get it over time.

I found a company that will do SFRs cost segregations for $695. They gather the data (pictures, dimensions, model numbers on appliances, cabinets, countertops, concrete, light fixtures etc) and use Marshall & Swift for the actual report.

They have told me that typically they find 8-10% of the purchase price in chattel. I've been told that the deduction not only includes the price of the $10 smoke detector, but also the time for someone to deliver it, install it, test it, run wires to it etc. So, the $10 smoke detector could actually be much higher. This same approach would be used for everything in the rental. My homes are all new and some with higher end chattel.

mstahl,

But why bother with the time and cost of a study for a sngle family dwelling unit, when so much of the property that would be segregated is 27.5 year property? The roof, HVAC, wiring, plumbing, windows, doors, cabinets, countertops, toilets, lighting fixtures, and even the smoke detectors are all integral components or permanent fixtures of the building structure and are 27.5 year property.

mstahl,

But why bother with the time and cost of a study for a sngle family dwelling unit, when so much of the property that would be segregated is 27.5 year property? The roof, HVAC, wiring, plumbing, windows, doors, cabinets, countertops, toilets, lighting fixtures, and even the smoke detectors are all integral components or permanent fixtures of the building structure and are 27.5 year property.