Cost Segregation - A Strategic Tax Planning Tool Worth Investigating

Cost Segregation - A Strategic Tax Planning Tool Worth Investigating

Posted by Robert Hancock on 04.24.20

Business owners are constantly looking for creative ideas to lower their company’s taxable income. Cost segregation is an extremely beneficial and widely used tax strategy, used by commercial property owners to significantly reduce taxable income as well as increase cash flow. Once used only by the largest accounting firms and real estate owners, this practice has now become routine for commercial and residential properties of almost every size. With the recent passage of tangible property regulations, the PATH Act and now the Tax Cuts and Jobs Act, cost segregation is more valuable than ever. Properties acquired or newly constructed in recent years may even qualify for bonus depreciation of up to 100%.  

Being familiar with and taking advantage of cost segregation benefits is critical for building owners wanting to boost their property investment in the most tax-efficient way.  

Whether recently purchased, newly constructed or remodeled, the components of your building may be properly classified through a cost segregation study. The cost segregation study involves a thorough review of a building by a qualified individual to identify which items qualify for quicker depreciation.

The primary goal of the cost segregation study is to determine which components of your property costs can be separated out and depreciated over shorter time periods, therefore speeding up the related tax deductions. For example, rather than 27.5-year (residential) or 39-year (commercial) depreciation for your structure, assets can be broken into 5 or 7 years for personal property and 15 years for commercial property. In fact, 25% or more of the cost of your building may be able to be reclassified. To determine the depreciation rate, the first step is a cost segregation study.

In this study a property is broken down into smaller components of a property such as:

  • The building itself is only eligible for straight-line depreciation. Residential buildings are eligible for straight-line depreciation over 27.5 years. Commercial buildings are depreciated using a straight-line method over 39 years.
  • Land improvements which include sidewalks, landscaping, parking lots and sprinkler systems. Land improvements can be depreciated over 15-years.
  • Personal property such as equipment, flooring, fixtures, window treatments and computers, to name a few are eligible to be depreciated over five or seven years.

Click here to request a free cost segregation assessment.

Tax Point Advisors works with CPA firms and business owners to coordinate the cost segregation study, to uncover potential tax savings and significantly increase cash flow through reclassification and depreciation of property. The IRS requires an engineering based report to support the acceleration of depreciation. Tax Point Advisors offers in-house engineering capabilities and the tax expertise to help you quantify the amount of tax savings you could receive. We also will identify any obstacles preventing a property owner from fully realizing their tax-savings potential.

To speak to one of the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.

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