Can a cost segregation study rescue a bad real estate deal? No. But cost segregation can turn a marginal rental property into a genuinely good one for the right investor, and this episode shows exactly where that line sits, with real numbers.

It started with a Reddit post: close on the deal, do a cost seg study, and let the depreciation bail you out. Hundreds of upvotes. It's wrong, and believing it can cost you real money. David Wiener, Mr. Cashflow, breaks down what a cost seg study actually does, who can use the losses it creates, and the bill that shows up later that nobody online mentions.

What's covered:

Why cost segregation is a timing tool, not free money. It moves write-offs you were always going to get from year 15 up into year one. Useful, yes. The same as creating value, no.

How 100% bonus depreciation changed the math, and why a 27.5-year versus a 39-year depreciation schedule catches short-term rental owners off guard.

Depreciation recapture, the part that never makes the Reddit thread. Building write-offs come back at a rate capped around 25%. The pieces a study carves out come back at ordinary income rates as high as 37%, plus net investment income tax in some cases.

Passive loss rules. By default these losses get parked until you have rental income to offset or you sell. Two ways to use them now: qualifying as a real estate professional, or the short-term rental rules for properties with an average stay of seven days or less that you actively run.

A full worked example on a $500,000 short-term rental. $100,000 land, $400,000 building, a study that finds 25%, roughly $97,000 of extra year-one write-off and about $36,000 in tax savings at the top bracket. Same study, two deals. On a marginal property it flips an $8,000 annual loss into roughly $28,000 in your pocket. On a property bleeding $40,000 a year, you're still underwater, and by year two the cushion is gone.

The five-step test to run before you sign a contract, including the zero benefit question that settles it in ten minutes.

Cost segregation studies referenced here are engineering-based and delivered through CSSI.

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Want to know whether a specific property belongs in the cost seg pile or the walk-away pile? I'll run a no-cost preliminary analysis on any property you own or are considering. No obligation, no pitch, and if a study won't pay for itself, I'll tell you that.

Book a time: https://calendly.com/david-wiener/cs

Or call 720-224-8504, option two.

Know an investor three tabs deep into a Reddit thread talking themselves into a marginal deal? Send them this one.

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