Can I use cost segregation on my primary residence with roommates to offset renovation expenses?

This is really helpful, thanks! Quick follow-up question - do I need to be claiming the rental income on my taxes to take advantage of these deductions? And would I use Schedule E for this or something else?

Yes, you absolutely need to be reporting the rental income on your taxes to claim any related deductions. The IRS doesn't let you claim expenses against income you're not reporting! You would use Schedule E (Supplemental Income and Loss) to report both the rental income and the associated expenses. You'll need to calculate the percentage of your home used for rental purposes, and only claim that percentage of shared expenses like roof, windows, etc. For example, if 30% of your home is rented out, you could depreciate 30% of those capital improvements over the appropriate recovery period.

How accurate is this? I'm always wary of tax software that promises to find deductions. Did you have any issues with the IRS after using their recommendations?

Does it handle situations where you've converted part of your home into a rental space mid-year? I renovated my basement in June and started renting it in August, and I'm confused about how to handle the partial-year depreciation.

It's actually incredibly accurate. What makes it different is it's not just software - they have real tax pros reviewing the more complex situations. I got a detailed explanation for each deduction with the exact IRS references to back it up. No issues with the IRS at all! For mid-year conversions, it absolutely handles that. The system asks when you started renting the space and calculates prorated depreciation based on the exact months the property was in service. It also helps determine what renovation costs occurred before vs. after you started renting, which affects how they're treated tax-wise. Really helpful for complicated timing situations.

How does this actually work? Does it just dial for you or something? Seems like if everyone used it the wait times would still be the same.

Yeah right. Nothing gets you through to the IRS faster. They have like 5 people working there total. I'll believe it when I see it.

It uses a technology that basically navigates the IRS phone tree and holds your place in line. When an agent is about to pick up, it calls you and connects you directly to them. It's not just auto-dialing - it's actually holding your spot in the queue so you don't have to sit there listening to that horrible hold music. It works because most people give up after being on hold for an hour, so the queue stays clogged. This way you can go about your day and just get the call when an actual human is available. It's not skipping the line, just making the waiting process less painful.

Can you explain what "recapture" means in this context? If I depreciate $20k of improvements over the years and then sell my house, what happens exactly?

Recapture means you'll pay taxes on the depreciation benefits you received when you sell the property. For example, if you depreciated $20k of improvements over the years, when you sell, that $20k will be taxed at a special 25% depreciation recapture rate (not your regular income tax rate). Even if you qualify for the $250k/$500k capital gains exclusion on your primary residence, the depreciation recapture is still taxable. So while you save money now by taking the depreciation deductions against your rental income, you will have to pay some of it back when you sell. It's essentially a tax deferral strategy rather than a complete tax avoidance.

I claimed it last year - you get 30% of BOTH equipment and installation costs! Just make sure you have documentation showing it meets the energy efficiency requirements. The contractor should have provided that.