STR Cost Segregation and Form 3115

[ahardy1]

Hello,

We purchased a cabin as an STR in 2022, as part of a 1031 exchange (sold one property and purchased two, in different states). We have had major expenses/losses with the property, but apparently can't write off all the expenses (TT desktop is recommending the standard deduction which is only 1/2 our expenses).

We did not know to take the section 179 depreciation last year, but we just learned we can adjust our depreciation using cost segregation. I have several related questions:

- Because our taxes were complex in 2022 (I use the desktop version of TT for home/business), does it make more sense to amend that return, or is it better to file a 3115 for this year instead? (this year is much simpler, tax-wise)

- Do we have to pay for a service to do the cost segregation study or can we do this in TT (or some other way; maybe the IRS instructions)?

- If we decide to do the 3115 change in accounting method, do I have to delete everything I already entered in TT (income/expenses) or do I just enter the amount as a "miscellaneous" expense and attach the 3115 pdf?

Thanks so much! We are new to the STR market and it has not been an easy transition from long-term rental property management. 

[AmeliesUncle]

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@ahardy1 wrote:

TT desktop is recommending the standard deduction which is only 1/2 our expenses.

We did not know to take the section 179 depreciation last year

-  does it make more sense to amend that return, or is it better to file a 3115 for this year instead? (this year is much simpler, tax-wise)

- Do we have to pay for a service to do the cost segregation study or can we do this in TT (or some other way; maybe the IRS instructions)?

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Rental deductions are completely separate from the Standard or Itemized deductions.

Section 179 has complications, especially for rental property.  I suspect you'll want to use Bonus Depreciation instead (also called the Special Depreciation Allowance).

If you have not filed 2023 yet, you need to amend 2022 to make the corrections.

You report the value of each asset in TurboTax.  To come up with the valuation of each asset, hiring a third-party company to do that valuation is common.  But if you feel you can get an accurate valuation for each asset some other way, you are welcome to do that.