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What is the impact of a cost segregation study if I sell my property?

September 5, 2015

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To evaluate whether cost segregation is a valid opportunity for your company, we’ll consider the length of time you believe you’ll hold the property in question.

If a sale may be in your short-term future, we’ll examine the whole picture with you, to analyze whether a study will be a benefit to you. For instance, when a cost segregation study is performed, some items that would normally be considered real property are instead allocated to personal property. At the time of your sale, the ordinary income rate can be higher or lower than the capital gain rate, depending on your situation. If higher, the amount of capital gain tax due upon a sale would most likely be more if a cost segregation study were performed. However, the financial impact of the cost segregation study will often outweigh the adverse effect on capital gains with increased deductions at the ordinary income rate.

If you believe you’ll buy and hold for a short period, we generally recommend cost segregation for clients that will hold a property for a minimum of 3-5 years. We will calculate the exact “break even” point to determine the benefits of the study.

This is a complex discernment process, one that partly depends on when the property was acquired and what the value of the accelerated depreciation property is upon disposition. Exploring the possibility of a 1031 exchange could be one answer for owners who plan to sell in the short term and want to take advantage of cost segregation.

Our tax experts will work with you to assess your specific situation and discuss your options. At CSH we offer a no-fee cost-segregation feasibility discussion, so that you can consider whether a study will benefit you.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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