Cost segregation is an extremely beneficial tax planning strategy used by commercial property owners to accelerate real estates depreciation. The ultimate goal is to decrease your tax liability and improve cash flow. Our online cost segregation software can help.
A cost segregation study is done by analyzing real estate within U.S. tax code guidelines, giving you a tax plan to help write off more costs. The quality of a cost segregation study is based on the level of detail on the engineering-based analysis. The analysis includes cost data, building plans, lease agreements, and an on-site inspection of the property by a qualified engineer.
Any commercial property placed in service after December 31, 1986 is qualified for a cost segregation study. A cost segregation study done by a cost segregation engineer costs around $12,000 today. A cost segregation study can save from 20% to 40% in taxes.
However, cost segregation only works well for properties that have a depreciable cost basis of $1 million at the least. If a commercial property is depreciating on a scale of 27.5 to 39.5 years then doing a cost segregation study can recategorize it to depreciate in 5, 7, or 15 years. This unique method will tell you exactly how much you could be saving on taxes
The absolute best time for a cost segregation study is the same year the property is placed in service by the taxpayer. It is still possible to do a segregation study for a property that was placed in service 20 years ago, however, there won’t be much savings unless significant changes have been made during those 20 years.
This is because the majority of depreciation has already been taken, thus there will be almost nothing you will save, and it is not going to be worth it to pay an engineer for a cost segregation study. It is not guaranteed that this is the case, the facts and conditions about what happened to the commercial property is what will decide if a cost segregation study is still worth it.
Online Cost Segregation Software
When a cost segregation study is done, commercial properties that would normally be considered all real property would instead allocate a portion to personal property. This has an impact on properties that have had cost segregation done on them, and are for sale.
So what is the impact? The amount of tax due upon the sale will likely be more if a cost segregation study was done on the property. However, the financial impact of the cost segregation study will outweigh the cons of higher taxes upon selling the property.
With accelerated depreciation, you will owe less each year on federal taxes. With less taxable income due to increased cash flow, you can increase your cash flow, every single year. Many business owners use their tax savings from cost segregation to reinvest in their businesses, or purchase property for more real estate.