Could you reduce the depreciable life of some of your assets?
Cost segregation is a widespread – and smart – strategic tax planning tool. It separates real property into various depreciable categories, and allows taxpayers to depreciate property over much shorter periods of time than the typical 39-year (or 27.5-year) period.
The goal of cost segregation is to increase the value of your deductions and get the quickest depreciation possible and the best possible expense treatment. Essentially, you can get a higher return on investment on the capital if you can write it off faster. The benefits include a rapid uptick in cash flow, a decrease in your existing tax liability, the ability to defer taxes, and the opportunity to reclaim past depreciation deductions.
Consider that when you purchase property, you acquire more than a structure: you’ve gained a set of building components. While you may look at this as one piece of property, it may surprise you to learn that, on average, 20% to 40% of the building’s parts and pieces may be looked at differently by the IRS. While structures are normally depreciated over 39 years, it’s possible that some components of your property can be depreciated over 5, 7 or 15 years.
The objective of a cost segregation study is to allocate each of your property-related costs into their appropriate property classes, in order to better calculate depreciation deductions. The idea is to analyze – and suitably separate – what’s part of the building, and what’s part of your business. As an example, portions of your electrical, plumbing and/or HVAC systems may be properly depreciated over 5 or 7 years.
The nature of construction and real estate makes cost segregation frequently beneficial to companies in your industry. A great deal of what goes into construction or renovation of your buildings is vital to supporting your business.
Is it time to see if you can recover your investment sooner? At CSH we offer a no-fee cost-segregation feasibility discussion, so that you can consider whether a study will benefit you.