Cost segregation is a sophisticated tax planning strategy applicable to building owners or renters. The goal is to identify tax savings and increase cash flow through accelerated depreciation deductions and deferring federal and state income taxes.
Cost segregation, or allocating the cost of a building’s components into appropriate classes of personal and real property, is used to shorten the depreciation recovery period. The analysis may be conducted on current and prior building costs and applies when a building is constructed, purchased, expanded or remodeled. Real property is typically depreciated over 39 or 27.5 years compared to reclassified property, which may be depreciated over 3, 5, 7 and 15 years.
Cost segregation increases the property owner’s cash flow through the following opportunities:
Increase In Depreciation Deductions: Cost segregation allows a portion of the property costs classified as real property to be reclassified to personal property with lower depreciable lives that will increase the owner’s depreciation deduction.
Increase In Green Energy Tax Incentives: Conducting a detailed analysis may capture benefits associated with energy-efficient building technologies as defined by Sec. 48 Business Energy Investment Tax Credit, Sec. 179D Energy-Efficient Commercial Building Deduction and Sec. 45L Energy-Efficient Home Credit applicable to apartment buildings and homes.
Reduction In Property And Sales Taxes: A cost segregation study helps to consider the effect of the property reclassification for property and sales tax purposes and gives us an opportunity to identify any rebates, deductions or exemptions that may exist as part of the tax re-computation.
Increase In State-Level Business Incentives: Many states offer business incentives (credits, exemptions, deductions, etc.) on certain types of assets generally classified as tangible personal property while offering other tax incentives related to energy-efficient and pollution control technologies. The increase in personal property provides an owner with additional cost segregation savings at the state level.
CTI’s cost segregation procedure includes the following steps:
Cost segregation may be among the most frequently used yet least understood tax strategies. To put your cost segregation confusion to rest, your outsourced tax experts at CTI bring more than 25 years of experience in cost segregation, engineering and construction. We offer our clients:
The below resources help unearth your potential tax savings while offering tips for traversing the complicated landscape of cost segregation rules and regulations.
If you’re an owner of a commercial property, you may qualify for substantial tax savings. Try our cost segregation calculator to see if you meet the qualifications to save significant tax dollars.
Ready to conduct your cost segregation study in a new, beneficial way? Click here to connect with a Tax Navigator at CTI and receive a free, 30-minute consultation.
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