Cost segregation services enable businesses to optimize tax depreciation benefits associated with the building or acquiring real estate while minimizing audit risk.
Whether you are building a new structure, expanding an already existing building, purchasing real estate, renovating an existing facility, or relocating with valuation adjustments, your property might yield significantly more tax deductions and cash flow benefits than you think. Taxpayers that correctly identify their development or acquisition costs as real or personal property might gain greatly accelerated tax deduction and cash flow benefits.
Engaging cost segregation services can be beneficial. They can systematically break down and categorize construction and/or purchase costs, optimizing accelerated depreciation on qualifying building components. The faster building components depreciate, the more money you can save with property taxes.
The taxpayer cannot enjoy the benefits of accelerated depreciation expenditure deductions available to commercial property owners until an engineering-based cost segregation study is completed. This results in them surrendering significant cash flow to the IRS in the form of taxes paid. They can accurately and legally classify construction or acquisition expenditures for tax depreciation considerations by completing a CSS by engaging in cost segregation services.
Frequently Asked Questions (FAQs) Regarding Cost Segregation Services
What is CSS or Cost Segregation Study?
A cost segregation study is based on engineering analysis that will reclassify or segregate real estate elements and enhancements among real and personal property to accelerate the depreciation periods from 39 or 27.5 years to 15 or 7 or 5 years.
Why is cost segregation not so much talked about?
Cost segregation was first adopted and conducted on the largest assets of their most significant clients by big accountancy firms that have in-house cost segregation teams. Initially, one study cost well over $100,000. COST SEGREGATION studies developed the strategies and protocols necessary to provide this same service at a very affordable price to commercial property owners. This implies that you can now take advantage of tax reductions previously reserved for owners of exceedingly large properties.
What properties will qualify for CSS?
1.) Acquired, built, or renovated property after December 31, 1986; and
2.) Intend to hold the property or real estate for at least a few years.
When is the appropriate time to do a cost segregation study?
It is best to complete a study for the year the structure or modifications is put into operation. However, the United States tax statute allows taxpayers to keep pace with unclaimed depreciation from the first day the property was brought into operation without modifying earlier years’ tax filings. Additionally, the current US tax law enables for the “catch up” period to be completed in the first year instead of over four years as required under Revenue Procedure 99-49. Any property created, acquired, or remodeled after December 31, 1986, is eligible for a cost segregation study.
What data is required to conduct a cost segregation study?
While each study is distinct, the following information is typically requested:
1.) A current schedule of tax depreciation
2.) Estimated construction costs
3.) Other orders
How is a cost segregation study conducted?
For federal tax purposes, construction costs are customarily categorized into three categories: (1) Tangible Personal Property, (2) Real Property, and (3). Land Improvements
Each has a particular recovery period and mechanism under the Modified Accelerated Cost Recovery System or MACRS, each has a specific period of recovery and mechanism (MACRS). When you engage in cost segregation services, they ensure that they are using engineering-based cost segregation analysis. It is conducted by professionals who thoroughly understand construction methods, the materials used, and building components. They can also conduct a detailed analysis to accurately identify the building components and modifications, which will be reclassified to take full advantage of the accelerated depreciation.
Why should I conduct a cost segregation study?
When you do not conduct a cost segregation study, your accountant will be limited to 39 or 27.5 years of straight-line depreciation. A cost segregation study offers precise information to your accountant for establishing 5, 7, 15, and 27.5 or 39-year depreciation schedules, which significantly increases your tax savings during the first years of ownership of the property.
How long would it take to complete a cost segregation study?
Typically, a cost segregation study takes between four and six weeks from the moment the cost segregation services company receives the necessary documents.
What will happen if an audit is conducted?
Suppose you are audited for whatever reason, and the cost segregation study is called into question. In that case, the company for the cost segregation services you engaged with will usually send out a professional who will attend the audit free of charge.
Can a cost segregation study be applied to unbuilt structures?
No. the cost segregation services, on the other hand, would be able to provide estimations on tax savings on your construction budgets for projects that have not yet begun construction. When construction is complete, the cost segregation project will then be conducted.
Avoid overpaying taxes.
Year after year, the majority of owners of commercial properties overpay their taxes. They forfeit considerable, permitted depreciation expense deductions. The majority of buildings are depreciated over 39, 31.5, or 27.5 years. An in-depth, engineering-based construction cost study, on the other hand, rectifies and legitimately converts large parts of facilities to a 15, 7, or 5-year schedule, saving the owner significant money. As a result, cash flow usable for wealth development is multiplied.
Determine the cost savings of cost segregation services.
Arrange a conference to determine — in actual, assured numbers — the financial benefits that could be available by employing Cost Segregation Services that are available locally — the secret to uncovering the power of your real estate and cash flow for the future. You will usually receive a quote for the amount of money you will save.
Take full advantage of the current savings period.
Accelerated depreciation results in immediate tax savings, boost the cash flow from tax savings, and increases discretionary utilization of the internally generated profits of your property. If you have not taken advantage of this opportunity, now is the time to speak with a cost segregation specialist to determine how much money you could very well be saving.