How Can Cost Segregation Help Minimize Your Tax Burden

How Can Cost Segregation Help Minimize Your Tax Burden

01 What is cost segregation?

Cost Segregation is a commonly used tax planning method that allows Organizations and individuals who have constructed, purchased, expanded, or remodeled any kind of real estate buildings, to get a reduction on their taxable income by having a cost segregation study or segregation analysis on the property.

If you, an investor, purchases a property, the value does not just come from the structure itself.

As much as 20% to 40% of both these components fall under tax categories that can be written off much quicker than the structure itself.

02 More on cost segregation Any type of commercial property can be a candidate for cost segregation, especially when it has been in service after December 31, 1986.

Note that any size also qualifies; however, lower valued properties might not be good candidates Usually, it makes more sense for properties to have a $1 million depreciate cost basis or even more.

03 BeneďŹ ts of Cost Segregation study Many business owners are surprised to learn of the compelling tax savings by cost segregation study.

Here the list of three most prominent benefits.

Cash Flow Generates immediate increase in cash flow through accelerated depreciation tax deduction.

Write Off Quantifies property’s major components and leasehold improvements so you can be written off when replaced or renovated.

Review It provides an independent third-party analysis that will withstand of IRS review.

04 How cost segregation works?

A cost segregation study should be completed by a professional and the study will separate certain qualified items that would normally be considered 1250 property.

This could include, The electrical system

Special plumbing

Specialized kitchen equipment

Lighting fixtures

Carpeting

The phone system

Wall coverings

The computer system

Partitions

Process piping

Millwork

Storage tanks

The ventilation system

A concrete slab floors

05 Who qualiďŹ es for cost segregation study?

Cost segregation studies will not suit everyone, it’s only applicable for commercial real estate investors or rental property owners with significant real estate activity that would benefit from a notable reduction in their federal income tax rate.

The cost segregation studies, and the examination steps will facilitate the audit process and minimize the burden on taxpayers, practitioners and service examiners alike.

And to know more on cost segregation visit www.enrichedrealestate.com