Owning a commercial property requires constantly managing costs and increasing cash flow to maximize overall return on investment. Most building owners and landlords scrutinize expenses and operational expenditures to run their building as lean as possible. However, many overlook the potential advantages offered from a cost segregation study, a tax incentive designed specifically for commercial real estate owners to minimize tax burden and maximize cash flow.
Cost Segregation Studies: What You Need to Know
Cost Segregation allows individuals and companies with qualifying real estate expenditures to accelerate depreciation deductions. Commercial property owners following a traditional depreciation schedule often adhere to a standardized rate that typically ranges from 27.5 - 39 years based on the building's entire structure. However, there are many interior and exterior components that qualify as personal property with a faster write-off period than the building structure itself.
Enter the Cost Segregation Study.
A Cost Segregation Study methodically examines every individual building component to assign a relevant rate of depreciation. A Cost Segregation Study goes beyond a holistic view of commercial land and buildings, identifying each particular asset and determining which, if any, qualify as personal property that depreciates at five-, seven-, and fifteen-year rates. At the conclusion of a Cost Segregation Study, the taxpayer will have a thorough analysis and separation of corporate and personal property and can assign a specific rate of devaluation.
The Benefits of Cost Segregation Study
Conducting a Cost Segregation Study yields several significant benefits to taxpayers. A professional analysis can help:
Reduce Tax Burden
Accelerating annual depreciation directly impacts the total taxable income associated with the property. A cost segregation analysis can instantly lower tax burden for each year that the benefit is leveraged.
Influx of Capital
Expediting the rate of depreciation allows taxpayers to maximize deductions, as well as defer both state and federal income taxes. Optimizing deductions can generate an immediate and significant upswing in overall cash flow, as well as improve total shareholder value.
Increase Write-Offs
Segregating a property's significant assets and improvements also increases the opportunity for future write-offs. You'll have the ability to write-off each asset as it’s replaced or renovated for further tax benefit in subsequent years.
IRS Compliance
Most importantly, a professionally conducted Cost Segregation Study not only ensures you won't miss out on tax-saving opportunities, but it also ensures that every deduction you claim is entirely compliant with both federal and state legislation. Additionally, in the event of an audit, your Cost Segregation analysis will provide independent third-party documentation that meets every IRS requirement.
Do You Qualify for Cost Segregation Tax Deductions?
The best way to determine if your commercial property is eligible for a Cost Segregation analysis is to partner with a tax accounting firm that specializes in this specific study process. A professional, reputable, and experienced tax team will systematically review your property to separate commercial and personal assets, creating relevant analysis and documentation that minimizes taxable income while optimizing overall cash flow benefits.
Contact Acena Consulting today to hear more about the many benefits offered through cost segregation and analysis from one of our on-site accounting experts.
