COST SEGREGATION AND THE 1031 DILEMMA

The overarching question comes into play in terms of the effect of applying Cost Segregation to a property that is involved in a 1031 Exchange Robert Taylor, CSSI’s VP of Operation has these carefully articulated these thoughts about the 1031 Exchange and Cost Segregation:

“You may be able to include personal property in a 1031 Exchange depending upon the state definition of the personal and real property. Please note the 15-year property identified in our study is real property and can be included in the exchange

Personal property can no longer be applied to a 1031 Exchange per the Tax Cuts and Jobs Act The 5- and 7year assets identified in our study are personal property However, real and personal property for 1031 purposes are defined at the state level (personal property in our study is defined at federal level for tax purposes). We are not experts in state tax, but from what we have seen, most states only include movable type equipment as personal property items This means the personal property included in our study that is attached to the building such as flooring, cabinets, etc could be included in the exchange, and would not cause a large issue within the exchange If this is the case for the particular state in which the 1031 is occurring, it could still be beneficial to have the study done even if you are selling in the near future ”

This link contains the language that states what is defined as real property for 1031 Exchanges. Bottom line Advanced planning is always the best defense If you or one of your clients are considering a 1031 option and applying Cost Segregation, we are happy to talk through the options