Top 5 Cost Seg Questions this week

1. How much deduction can a house provide?

Usually 10% to 40% of the purchase price.

Why the wide range? No two houses are the same, and the number comes from facts about the property, not an average. Land is the biggest driver. Land never depreciates, so if you bought where land value is high (beachfront, west coast), a large share of the price can’t be deducted.

2. What return should I expect?

It depends on your tax bill, and your accountant can help you size it.

At $500K MFJ, you likely owe ~$102K. Offsetting that takes roughly a $425K to $500K house. Note there’s a ceiling: MFJ, you can apply $512K of net business loss against other income in a year, and the rest carries forward.

3. Do I depreciate the furniture and the Vitamix?

No.

Furniture and small appliances are capital expenses, and no study is needed. Unlevered helps when you furnished two years ago, the receipts are gone, and your estimate needs to be backed up and itemized.

4. Do I have to be the plumber to meet material participation?

No, and you don’t need REPS.

Finding the plumber, agreeing the price, arranging access, checking the work: that’s participation. So is the turnover schedule, the 10pm guest messages, pricing, reviews, supplies.

• 100+ hands-on hours in the activity, personally logged
• More hours than any other single person (cleaner, handyperson, manager), compared one by one, not combined
• Your spouse’s hours count, even with no ownership stake

5. Can we make the deduction bigger?

No, and be careful with anyone who says yes.

The house has a certain roof and a certain driveway. Gray areas exist, cabinetry is a real one (IKEA box vs. custom), but that’s an argument about the actual cabinets in the actual house.

The asset bounds the depreciation. That’s what keeps us honest about the ceiling.

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