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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.