Cost segregation delivers a viable tax strategy for business owners in multiple verticals to boost real estate return on investment. For entrepreneurs who have spent money to construct, acquire, or renovate commercial properties, a cost segregation study can maximize total cash flow opportunity, helping building owners and landlords minimize tax burden and accelerating depreciation on their real estate assets. By reclassifying specific components of their commercial facility, real estate investors can systematically separate personal from real property, ultimately fast-tracking overall depreciation to lower total taxable income, drive access to capital, and optimize tax-deferred advantages.
Professional Tax Accountants Can Offer Cost Segregation Services
Talking with an experienced accounting firm that specializes in cost segregation services is the best way to determine if your business would benefit from a professional, thorough study on your current real estate assets. Go into the process knowing some of the most mission-critical questions (and answers), so you have the information you need to move forward with confidence in the process.
What Can I Expect From the Quality Cost Segregation Study Process?
A quality cost segregation study requires extensive, engineering-based analysis. During the process, your assigned study engineers will perform a thorough review of vital information, including:
- Cost data
- Lease agreements
- Building plans
A quality cost segregation study also includes a detailed, on-site property inspection. Once your professional cost segregation team has assessed both the site and the relevant documentation, they will establish a breakdown of costs, allocating each expense to an assigned recovery period that typically spans anywhere from 5-39 years, depending on the project's specific facts and circumstances. One thing to note: your engineering-based study will go beyond examining only the expenses that qualify for a shorter recovery period to evaluate all depreciable costs.
What Types of Commercial Properties Are Eligible for Cost Segregation Depreciation?
Commercial properties of any type qualify for a cost segregation study as long as they've been placed in service after December 31, 1986. The size of the property has no bearing on eligibility. However, properties with a lower valuation may not be good candidates for the study based on cost/benefit analysis. As a general rule of thumb, property owners should own real estate assets with a depreciable cost basis of $1 million or more to consider pursuing a cost segregation study.
When Is the Best Time to Conduct a Cost Segregation Study?
Typically, the most beneficial time to conduct a cost segregation study is the first year the current taxpayer places the property in service. To maximize tax deductions for both new construction and acquisitions, most property owners begin the depreciation process in year one.
Am I at Greater Risk For an IRS Audit After a Cost Segregation?
Generally, new assets, whether from new construction or an acquisition, do not increase the risk of an IRS audit. However, working with a professional firm that specializes in cost segregation studies means that you're entrusting the process to an experienced and qualified vendor. Your chosen provider will carefully assess, track, and manage the entire process for you. In the event of an audit, you will have all the documentation needed to demonstrate full compliance for complete peace of mind.
Contact Acena Consulting Today
Of course, these are just some of the many preliminary questions to ask before moving forward with a cost segregation study for your business property. The best way to determine if your real estate assets qualify for accelerated depreciation is to partner with an accounting team that specializes in the cost segregation process. Acena Consulting can help. Contact the team today to schedule a consultation with one of our tax professionals.