Tax Incentives Blog

The main trigger to consider conducting a fixed asset disposal study is when you plan to renovate real estate property. When planning to demolish or renovate a building – whether tearing out lighting, HVAC units or other components – these assets are effectively abandoned or retired from the building. The tangible personal property’s remaining depreciable basis can be written off (for tax) once the asset is retired.

The concept is simple enough, but the challenge can be ascertaining the correct value for the component parts of the building. By performing a cost segregation on the original acquisition of the building, you obtain the value of the original components at the snapshot in time of the acquisition, thereby allowing you to the write off the remainder of the basis upon disposition of that old property.

To claim tax deductions, a property owner needs to apply the non-cash depreciation expenses against their taxable income, which effectively offsets tax liability. Instead of utilizing a straight-line depreciation method for real estate assets to capture tax deductions, your clients can accelerate the depreciation of fixed assets via a cost segregation study that generates significantly more tax benefit.

Depreciating assets over a shorter tax life results in considerably more annual tax deductions for the property owner, especially within the first five years of the building’s lifecycle. Further, by conducting a formal cost segregation study, you are assured the correct and most beneficial taxable life for all assets, based on relevant tax rules established by the IRS.

CPAs have a core set of accounting responsibilities they carry out on a daily basis. Today, however, CPA firms and the clients they serve are expecting accountants to know and do more.Clients that are property owners want to take advantage of every tax savings opportunity possible. This means CPAs need to help them navigate the complex world of cost segregation and accelerated depreciation for fixed assets. 

The recently issued “repair regulations” provide guidance regarding the capitalization of amounts paid to acquire, produce or improve tangible property. 

Final tangible property repair regulations provide rules covering three general areas:

• Costs to acquire or produce tangible property;
• Costs to improve tangible property; and
• Dispositions. 

All cost segregation specialists are not created equal. Before outsourcing your client’s cost segregation study, you must do your due diligence to find the right service provider. Ask the following five questions to ensure your cost segregation specialist is equipped to maximize ROI and deliver an audit-ready study:

A taxpayer constructed a manufacturing facility for $12,081,885 and was depreciating the entire capital expenditure as a 39-year straight-line cost.

An outsourced tax consultant offers CPA firms guidance in areas of tax credits and incentives where your accountants may not be knowledgeable enough. Typically, this is a partnership that’s ongoing and facilitates a sustained approach to maximizing tax savings for your clients.

However, a tax consultant could play an even more important role within your firm.

As the owner of a CPA firm, you know you need more efficient workflows to meet client demand for improved tax return outcomes. Helping clients navigate the complex world of tax credits and incentives ensures maximized tax savings (which improves the outcome of their tax return).

The right tax credit software system enables you to house all of your client projects and information in one place. With a singular standard for organizing your client project information, you encourage a collaborative environment with high visibility into client projects.

A CPA firm had a client with an unexpected state tax liability. The firm was unsure of how to handle this delicate matter with the client, especially in terms of how to minimize the liability by utilizing available tax credits the client may qualify for.