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Cost Segregation – A Tax Savings Tool – 2
What Can Cost Segregation Do
- Cost segregation can provide real estate purchasers with tremendous tax benefits from accelerated depreciation deductions and easier write-offs when an asset becomes obsolete, broken or destroyed.
- CPAs can recommend using the cost segregation technique when a taxpayer constructs a building or buys an existing one. It can be used even if a structure was acquired several year s earlier.
- Buyers of real estate should obtain an engineering report that segregates assets into four categories: personal property, land improveme nts, building components and land.
- One of the areas of controversy is the distinction between tangible personal property and a building’s structural components. The tax court has set forth criteria CPAs can use in making a factual determination of whether property is inherently permanent and therefore excluded from the definition of tangible personal property.
- Advantages of cost segregation include the value of front-loaded depreciation deductions, write-offs of building components that need replacement and lower local realty-transfer taxes.
Disadvantages include the cost of the engineering study, the triggering of depreciation recapture a nd understatement penalties for taxpayers that use cost segregation too aggressively.
Purchasers of real estate can gain tremendous tax benefits by using a popular asset depreciation technique called cost segregation. Using this method, buyers view a real estate acquisition as consisting not only of land and buildings but also tangible personal property and land improvements. The tax savings come from accelerated depreciation deductions and possible easier property write-offs. A taxpayer can use cost segregation when constructing a building, buying an existing one, or, in certain circumstances, years after disposing of one so long as the year of disposition still is open under the statute of limitations.
Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.
Commercial Office Buildings, Commercial Real Estate, Commercial Real Estate Investment Strategies, Cost Segregation, South Florida
Investing, Investing Tips, Measuring Office Space, Miami, Miami-Dade, Property Management, South Florida
Cost Segregation is an IRS-approved method to increase your deductions for depreciation which reduces your taxes. This will reduce your taxes by approx. $35,000 for every $500 K you have in building costs (or purchase price). This is for existing property or new construction. This is something that most CPAs know about but don’t do for their clients because they don’t have the engineers and expertise on staff to do it. We can do a free analysis so you will see the financial benefit in your situation. Contact us at 888-303-4874 or todd.strumpfer@costsegserve.com