Have you Considered the Tax Benefits of Cost Segregation Study? Cost Segregation can help speed up your depreciation and save thousands in Income taxes.
Cost Segregation can help offset your rental or real estate income using bonus depreciation. Learn Learn how we can use Cost Segregation to help lower your tax burden.
Contents
What are the Tax Benefits of Cost Segregation Study
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What is Cost Segregation?
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How is cost segregation study done?
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Cost Segregation for Real Estate Owners/Investors
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Who can perform Cost Segregation Analysis?
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Best time to get Cost Segregation Study Done?
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What type of Individuals or Businesses can benefit from cost segregation?
What is Cost Segregation?
Cost Segregation is the process of segregating personal property assets (Such as equipment, furniture, fixtures & leasehold improvements) that are with real property assets such as Building and Land.
This is used by individuals and businesses as a tool to accelerate depreciation deduction in order to save taxes.
How is Cost Segregation Study done?
Cost Segregation Study is a formal process where tax professional and engineers work together to separate real property (Building and Land) from personal assets (Equipment, Furniture, Fixtures, Leasehold improvements).
If segregation is not done, most of these will be depreciated over 27.5 years for Residential and 39 years for Commercial Real Estate. By doing segregation large portion of
For Example if you buy a property for $1,000,000.
Cost Segregation will typically allocate the Land portion first for example $100,000
Then they will take the remaining $900,000 divide that in
Building $400,000 27.5 Years for Residential or 39 Years for Commercial Property.
Leasehold Improvements $200,000 Typically over 15 years
Building Components $100,000 Typically Depreciated over 5 to 7 Years
Furniture Fixtures $100,000 Typically Depreciated over 7 Years
Equipment $100,000 Typically Depreciated over 5 Years
Not only this process allows you to depreciate equipment, furniture fixtures,
leasehold improvements much faster(5-15 years), many of these may qualify for Bonus Depreciation making the process is more tax advantageous.
Cost Segregation for Real Estate Owners/Investors
Cost Segregation can be one of the best tools to minimize taxes for Real Estate Owners and Investors.
This allows you to offset your rental income with bonus depreciation taken on the building components, equipment, leasehold improvements and so on.
Furthermore, If you are real estate property owner learn more about how to minimize taxes by reading our other article about “Tax Benefits of Owning Rental Real Estate”
Who Can Perform Cost Segregation Analysis?
Typically Cost Segregation is done by Tax Professionals and Engineers who have experience and expertise to
separate out building components from real property.
If you need to find a professional you can visit website for American Society of Cost Segregation Professionals.
Best time to get Cost Segregation Study Done?
Typically, Best time to do cost Segregation is when you purchase the building. This will allow you to plan out your depreciation and maximize the depreciation as soon as you acquire the property.
What type of Individuals or businesses can benefit from Cost Segregation?
Many real estate owners & investor along with business owners can greatly benefit from cost segregation study.
Here are some examples of type of individuals and businesses:
- Apartment Building Owners
- Gas Station Owners
- Commercial Office Building Owners
- Retails Shopping Center Owners
- Medical Facilities and Medical office buildings
- Warehouses
- Car Dealerships
- Distribution Centers
- R&D Facilities
- Hotel & Motel Owners
- Restaurant(Fast Food & Formal) Building Owners
- Hospital & Dental Building
- Surgery Centers
- Car Washes
- Manufacturing Facilities
- Veterinary Hospital & Practice Buildings
- Truck Stops
Conclusion
Cost Segregation is a strategic way to defer taxes by using depreciation deduction now instead of later. You Can definitely benefit form learning more about how this work and how it can help you lower your tax liability.
Please note that IRS is always looking to audit people so its good idea to learn more on how IRS audits Cost Segregation area. Here are detailed audit guidelines IRS follows when auditing Cost Segregation.
Learn More
Real Estate Appraisers Tax Deductions 2021-2022 (Ultimate Guide)
