When looking to reduce the depreciable life of some property assets, gaining a deeper understanding of cost segregation is a must.

Cost segregation studies provided by cost segregation services firms are a widespread and clever strategic tax planning means. Cost segregation services allow for real properties to be segregated into several depreciable categories. This tool then allows taxpayers to depreciate their properties over shorter periods than the typical number of years (39 or 27.5 years).

The objective of a cost segregation study or analysis done by cost segregation services firms is to increase the value of deductions. Then next is to get the fastest depreciation possible and the best possible expense planning. A property owner can get higher investment returns on the capital if their cost segregation services firm can write it off quicker. This may translate to advantages that include a rapid influx of cash flow, diminishing of existing tax liability, the choice to defer taxes, and opportunities to reclaim previous depreciation deductions.

Here is a short explanation of what a cost segregation services firm does with cost segregation studies or analyses.

One thing that should be considered and that is when buying a property, one should look to have acquired more than just a structure but a have acquired a set of building parts or components. It is usual to view a property as one piece, but it may surprise some to learn that, on average, 20 to 40% of a building's components – parts and pieces – are viewed differently by the Internal Revenue Service or IRS. While structures can be customarily decreased in value over 39 years, some components of the property may depreciate over the next 5, or 15 years.

The goal of a cost segregation study by a cost segregation services firm is to apportion every cost that is property-related into an appropriate property classification, then allowing for better calculation deductions in depreciation. The idea is to analyze and properly separate what is a part of the building and what part belongs to the business. For instance, plumbing, HVAC (heating, ventilation, and air conditioning) systems, and portions of the electrical may be suitably depreciated over 5 or 7 years.

Hiring a cost segregation services firm is frequently beneficial to companies in industries with relation to the nature of construction and real estate. A big chunk of what goes into building or renovation of buildings is essential to supporting the business.

Commercial business owners can see if investment recovery can be done sooner by consulting with a cost segregation services firm. Ensure that they can offer feasibility discussions on this, and can determine whether a cost segregation study will be most beneficial to the business.

Frequently Asked Questions (FAQs) on Cost Segregation Services Firm Selection

When a company has a plan to build, purchase or renovate a property, or has accomplished so in the past couple of years, a cost segregation study done by a reputable cost segregation services firm may just be the power tool to help boost cash flow and decrease liability on tax.

The following frequently asked questions were designed to help commercial property owners determine whether a cost segregation study from cost segregation services firms is most suitable.

Q: Who can consider a CS study by cost segregation services firms?

Companies looking to plan or that have recently constructed or purchased buildings and those companies that have newly renovated a building they presently own or leased can consider cost segregation studies or analysis by cost segregation services firms.

Q: What benefits are there from a cost segregation study?

A cost segregation study done by cost segregation services firms has multiple, beneficial advantages which include a quick, significant increase in cash flow, a decrease in current tax liabilities, the capacity to comply with taxes, and the chance to reclaim past deductions on depreciation.

Q: How do cost segregation services firms work?

Cost segregation is a powerful strategic tax planning instrument that classifies real properties into different depreciable categories. Cost segregation when done by reliable cost segregation services firms allows the depreciation of property by taxpayers over a much shorter period than the typical depreciation period of 39 years.

Q: How is cost segregation impacted because of tax reforms?

Under the new prevailing law, an additional depreciation can be availed for property components that are classified as a depreciation period of 20 years or less. This extra depreciation is open to both new construction and properties that have been acquired at a 100% rate – this has increased from the 50% prior law indicates. These updates make cost segregation, done properly by cost segregation services firms, even more, impactful for taxpayers and property owners.

Q: What kind of items can be reclassified in the cost segregation studies by cost segregation services firms?

Many types of items can be qualified and can fall into certain components. Some of the property parts include the flooring, appliances, signages, countertops, lighting fixtures, cabinetry, sidewalks, parking lots, and even sidewalks.

Q: What various types of properties qualify for cost segregation studies?

Same with the type of items, a lot of various property types can qualify for cost segregation studies by cost segregation services firms. Commonly, these properties may include office buildings, retail centers, apartment buildings, heavy or light manufacturing facilities, banks, hotels, motels, grocery stores, restaurants, theaters, golf courses, auto dealerships, research centers, development centers, and a lot more.

Q: Can a new building purchased or constructed a few years back still benefit from cost segregation studies by cost segregation services firms?

The answer is a clear yes. Cost segregation services firms are still able to perform cost segregation studies on structures built, purchased, or renovated in prior years. The IRS rules allow for the catch-up of additional depreciation in the current tax year. There is no need to amend tax returns though in this case. One can see current-year tax benefits from transactions related to real estate taking place ten or more years back although dependent on the building's size and purchase prices.

Q: How long does a cost segregation services firm take to conduct a cost segregation study?

It can typically take 30 to 60 days to do a cost segregation study. Although, the timing of delivery of the analysis may depend on the size of the project as well as whether all information and documentary support is provided upfront.

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