Cost Segregation Study: A Helpful Guide!


The Cost Segregation Study is a lucrative tax tactic. It should be utilized in all the primary purchases of commercial properties. The study is ideal for all those businesses that have constructed, purchased, or renovated commercial buildings. Trusted and reliable cost segregation consultants will uncover all the elements of all these buildings, which are eligible for accelerated tax devaluation.

The cost segregation study is conducted by experts or specialists who are well-versed in it. They examine carefully to maximize the short-life property recognized by the owners versus the long-life ones for the real estate.

This study allows companies to easily lessen their tax liabilities and increase their near-term cash flow effectively without much hassle.

So, are you interested in gaining more information on cost segregation studies? Go through this blog post.

Cost Segregation Study: A Brief Definition

For income tax-related purposes, all the real estate investors and property owners will generally depreciate commercial properties for over 39 years and residential rental properties for over 27.5 years. But a warehouse, office building, residence, and any other property is not just the structure itself. It includes various other components, such as fencing, sidewalks, carpeting, plumbing fixtures, and countless other things.

When you want to buy these assets by themselves, you can easily depreciate them for over five years, seven years, or even 15 years. They are bought as a part of the building development or acquisition, and it's then written off over the exact life of the remaining building, which is 39 years or 27.5 years.

This study is where an expert looks at all the property components. After that, it's divided into various categories and enables you to benefit from the accelerated depreciation timeline for several of the elements of those buildings.

What are the Advantages of a Cost Segregation Study?

There are numerous advantages that cost segregation studies provide. In this section, you will discover the important ones.

·      It applies to retail, office, industrial, and residential properties.

·      Apart from benefiting the standard income taxpayers, it will also benefit the REITs as the present value of the deferred dividend.

·      The income tax obligation still gets paid, but the benefit will be quantified according to the current value of all these tax deferments.

·      Through the acceleration tax depreciation, all the property owners can easily defer the reported income to the upcoming years and, in return, defer the income tax obligations.

·      You will come across local, state, and federal tax advantages provided after splitting the cost of any personal property from the actual one. Even if this process doesn't increase the amount, which can be written off, the accelerated recovery period will increase the cash flow. Doing so will enable all the funds to be utilized or invested in the business.

Why is Cost Segregation So Vital for Property Owners?

It certainly does matter when it comes to segregating the costs of a particular property. It's mainly because of the monetary advantages that it offers. The study comes with an up-front cost, but the tax savings from the accelerating depreciation deductions can significantly increase the cash flow over many years.

Through the cost segregation study, you will also benefit significantly from the time value of money. But this also means that when you don't plan to hold on to the property for a long time, you might not benefit from the cost segregation study. It's mainly because all the up-front advantages reverse the sale of the property.

Who Can Perform the Cost Segregation Studies?

You can't perform this analysis by yourself because it's not feasible. It's mainly conducted by a group of skilled engineers and tax advisors. They work together to determine which elements of a property should go under every category and how much all the components will cost on their own. These professionals carefully get the analysis done and make sure that there is no error or mistake.

How Exactly Does the Cost Segregation Work?

The objective of the cost segregation study is to detect all the costs related to a property, which can be easily depreciated over five years to 15 years. Otherwise, it will quickly get written off by using the bonus depreciation. To make sure this is accomplished, the advisory team will review all the property records, blueprints, cost details, and available inspections. They might also perform a physical investigation or inspection of the property.

Cost Segregation Study: An Example

To have a good understanding of the cost segregation study, here is an example:

"Let's say you purchase an office building for $1,000,000. The land is not depreciable, so you decided that the land is worth $200,000, and the building is $800,000. So, when you depreciate the building for over 39 years, the depreciation write-off will be $20,512.82 each year. You can assume a federal income tax rate of 37%, saving you around $4,600 on taxes".

Final Thoughts

A cost segregation study is compulsory for all those property owners or companies who renovated, constructed, or acquired a particular building. It will help them benefit greatly in the area of taxes. If you're looking for an effective cost segregation study, you contact the experts from Lindon Engineering. They do extremely well regarding cost segregation studies, which have greatly resulted in tax savings.

They are professional, knowledgeable, and also easy to work with. The company will surely walk the extra mile for all its clients and ensure the analysis is done effectively. They are well aware that all commercial properties are unique, for which they offer their cost segregation study after properly discussing and gaining more information about it. After that, they will examine the property.

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