If you’re a business owner & property owner, a cost segregation study is an opportunity that can offer you significant tax savings. Cost segregation is a tax deferral strategy that frontloads depreciation deductions for real estate assets into the early years of ownership.
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Savvy real estate investors often focus their efforts on minimizing their tax liability by taking advantage of certain tax strategies within our tax law. Cost segregation is a strategic tax planning tool that has the potential to shelter taxable income by depreciating certain components of a property at an accelerated rate.
Each study involves:
Identification of all non-structural and land improvement costs & other tangible personal property assets.
Categorization of these costs in accordance with applicable asset classification guidelines incorporating the most favorable depreciation lives & methods.
Development of proper documentation for taxing authorities & management purposes.
Preparation of additional management information to help you enhance cash flow, reduce certain costs, qualify for various incentives & gain greater control over expenses.
How the Tax Cut and Jobs Act changed Cost Segregation
The Tax Cut and Jobs Act (TCJA) added several provisions to the IRS code including the Section 179 deduction, which allows business owners to take a bonus depreciation of 100% for qualified assets in the first year (as defined by a cost segregation study) rather than depreciating the assets over a longer period of time. This 100% bonus deduction is only available until 2022 and will then be slowly phased out until it is completely gone by 2027.
What are the Benefits of Cost Segregation?
Many business owners are surprised to learn of the compelling tax savings a cost segregation study offers. Below is a list of three of the most prominent benefits.
Cash Flow
Generates immediate increase in cash flow through accelerated depreciation tax deductions.
Write Off
Quantifies property’s major components and leasehold improvements so they can be written off when replaced or renovated.
Review
Provides an independent third-party analysis that will withstand IRS review.
Our team of cost segregation tax experts can help you if your CPA has questions.
There are so many unique fact patterns and situations that can have a tax impact on how the Cost Segregation deductions will flow through on your tax return. A Cost Segregation engineer does not know enough about tax to truly understand how the Cost Segregation deductions will specifically impact you. Using a firm with tax experts on staff will. Call us today at 212-635-9500 to talk to an expert today.