What is a Cost Segregation Study?
A cost segregation study identifies and reclassifies property assets to shorten the depreciation time for taxation purposes. Costs for non-structural elements, such as wall covering, carpet, lighting and site improvements such as sidewalks and landscaping can often be depreciated over 5, 7 or 15 years rather than over 27.5 or 39 years. This allows you to benefit from an accelerated depreciation timeline.
Who performs it?:
A cost-segregation specialist, usually an engineer, can perform a detailed engineering study of the building’s walls, flooring, ceilings, electrical, lighting, etc. They break the components into categories which determine the assets useful life for depreciation purposes.
Why does it matter?:
A cost segregation study can provide you with financial benefits. The study itself has an up-front cost, but the tax savings that are derived from the acceleration of the depreciation deductions can significantly increase cash flow.
How Does it Work?
The goal of this analysis is to identify all property-related costs that can be depreciated over periods of time (five to fifteen year periods) or written off using bonus depreciation.
Here is a brief outline of the process:
Feasibility Analysis
- Complimentary estimate of the potential benefits and fees to perform the study.
- The owner’s tax position is identified
- Property characteristics identified
- Gathering Additional Information
Examples of Additional Information:
- Appraisal
- Vendor information
- Closing purchase documents
- Construction drawings
Analysis of the property
- Onsite tour
- Classifying costs and estimates
- Completion of Report
- Tax supporting assets classification
- Methodology
Is it Worth It?
A cost segregation study is one of the most advantageous tax strategies available to property owners and increases federal tax deductions significantly in most cases.
In conclusion, yes it is worth it!
Badger CPA Can Help
We are a CPA firm based in San Antonio that specializes in accounting for businesses. We value putting people first, accountability, and results. Conducting a study like this is not feasible to do on your own, that’s why we are here to help. Our team of experts looks for your ultimate benefit. We will guide and keep you updated on this analysis and more every step of the way.
For more information, contact us today!