Cost Segregation is a process by which commercial property owners can accelerate depreciation and reduce the amount of taxes owed. These studies have resulted in advantageous depreciation deductions for taxpayers and have become a common method of depreciation. Depreciation is a deduction that real estate investors can claim on their income taxes each year to help them recover the cost of owning, operating and maintaining that property. This method reduces the amount of money you owe on your income taxes each year and reduces the expenses of owning investment real estate.
A Cost Segregation Study makes the distinction, for income tax purposes, between real property and personal property, which together constitute a commercial property. The best time to have a Cost Segregation Study during the same year that your investment is made. This gives you the most tax savings when you are also spending the most money on your investment. However, if you did not obtain a Cost Segregation Study when you first built, purchased or remodeled a property, you can order what is known as a look-back study. A look-back study allows a tax deduction to be claimed in a single year on properties that you bought, built or remodeled as far back as January 1, 1987.
The different non-permanent components and systems that make up personal property depreciate at a faster rate than real property (as allowed by the IRS), so having a Cost Segregation Study performed makes sense because it generally means a lower tax liability – and more available cash flow – for property/business owners. This particular program, based on the Investment Tax Credit, could mean a savings of more than 20% on taxes for the depreciation of these particular assets of their commercial investments. At the present time, the depreciation rate for real commercial property is 39 years. The depreciation of certain qualifying assets can be accelerated to five, seven or fifteen years instead.
Contact us now for more detailed information on a Cost Segregation Study for your investment properties.