Cost Segregation
Understanding the Power of Cost Segregation Studies
Could a cost segregation study be your ticket to increased cash flow? When you own a commercial or residential building and bear a tax liability, conducting a cost segregation study may potentially unlock significant tax benefits.
Exploring Cost Segregation
Cost segregation is a strategic tax planning tool that could enhance your cash flow by accelerating the depreciation of construction-related assets. Typically, these assets are depreciated over 5, 7, and 15-year lives, as opposed to the standard 27.5 or 39 years. The benefits aren't limited to newly constructed or acquired properties - even buildings constructed or purchased back in 1988 and beyond could be suitable for a cost segregation study.
The Added Boost of the 2017 Tax Reform Legislation
The tax reform legislation passed in 2017 marked a significant development in cost segregation studies. Now, "used" property is also eligible for 100% bonus depreciation, allowing you to accelerate tax depreciation further in the first year an asset is in service.
What Does a Cost Segregation Study Entail?
A cost segregation study can allow a taxpayer to front-load the depreciation expense deduction that a property would otherwise receive over 27.5 or 39 years. The study allows you to accelerate the depreciation of personal property and Qualified Improvement Property (QIP), leading to significant savings in tax liability and a boost in short-term cash flow.
Executing a successful cost segregation study is a task for experts. It involves a comprehensive pre-qualification process, detailed data gathering, site visit, analysis, review, and final reporting. The report produced should align with IRS guidelines to ensure it withstands any potential audit.
Is Your Building or Improvement Eligible?
To be suitable for a cost segregation study, your property should:
Have been placed-in-service since 1987
Currently be depreciating over 27.5 or 39 years
Have $500,000+ in capitalized costs
Have been acquired, constructed, expanded, or remodeled
Belong to a tax-paying entity
Reaping the Benefits of Cost Segregation Studies
Cost segregation studies can yield significant benefits, such as increased cash flow in earlier years and the net present value (NPV) of receiving depreciation expense deductions sooner rather than later. To further enhance these benefits, cost segregation studies can be coordinated with other services like Repairs and dispositions under the Tangible Property Regulations, and § 179, § 179D and § 45L studies.
Maximize Your Tax Deductions Today
A cost segregation study can unlock significant tax benefits by segregating construction or acquisition costs among various building systems and components. Stout professionals utilize their expertise to develop a detailed cost model of your building and site improvements, facilitating the appropriate allocation of FMV costs to real and personal property assets.
Embrace the power of cost segregation studies today and watch your business thrive.