A Cost Segregation Study Can Help You...
- Adjust the timing of depreciation deductions to maximize tax savings
A cost segregation study will help you classify assets as eligible for the shortest appropriate depreciable lives. Using IRS prescribed engineering-based methodologies, we are able to quantify and value specifi c assets that would normally not be segregated from a capitalized building. By assigning a cost to these assets and categorizing them into appropriate class lives, you are able to accelerate your depreciation deductions and reduce your taxable income. As a taxpayer, you pay less income tax during the early years of ownership.
Even if you have held a property for a number of years, a cost segregation study can be performed to take advantage of missed depreciation deductions. The IRS has approved an automatic change in accounting method which allows a taxpayer to re-compute depreciation that should have been taken based on a cost segregation study. The “catch up” depreciation adjustment is currently deductible entirely in the year of the change, and the adjustment often exceeds several hundred thousand dollars. These adjustments are allowable up until the year of sale of a property.
2. Increase cash flow
Taking depreciation on assets in the early years, rather than for a period of up to 39 years, creates reduced taxable income, lower taxes and more cash sooner. This cash is available to the taxpayer to invest in additional income-producing activities. The time value of this money can be computed based on an anticipated rate of return from investing the cash saved earlier rather than later. The net present value savings on a cost segregation property can be up to 7% or more of a property’s purchase price.
3. Save taxes on the sale of property
Depreciation is an ordinary deduction from income taxed at federal marginal income tax rates, which can be up to a 35%. Over time, personal property items are often disposed of or sold at little or no taxable gain. As a result, most of the gains on sales of properties are taxed at a 15% or 25% federal rate. After a cost segregation study, this results in permanent savings where the taxpayer took significant deductions at 35% and recognized income on the sale at 15% or 25% tax rates. This increases the value of a study if a property is sold before it is fully depreciated.
CSG Strategic Tax Solutions
CSG has a solution to help you maximize tax savings and increase cash flows on your future, current or past property purchases.
A well-designed, engineering based cost segregation study helps you:
- Maximize tax deferrals
- Increase cash flows
- Save taxes on the sale of properties
The IRS has determined that the depreciable tax life of most commercial buildings is 39 years. This means that each year after the purchase of an income-producing property, you may only deduct 1/39th of the purchase price. The tax life on personal property and land improvements, however, can range from 5 to 15 years at accelerated methods. It is advantageous to identify items that can be properly classified into categories with shorter lives. A cost segregation study will do just that.