Does My Property Qualify for Cost Segregation?
After you’ve heard about the perks of performing a cost segregation study on your assets, you’re interested in what exactly you need to perform one. Now that you’ve decided that a cost segregation analysis is something you want to pursue, you need to make sure it’s the right choice for you. So, what do you need to do to make sure that a cost segregation analysis is the right answer for your business’ assets?
To help you decide, we’re going to take you through a few things so that you can decide if this type of analysis will be beneficial. We’re here to help you do your homework on cost segregation so that all your questions will be answered.
Questions to Ask
First and foremost, you need to take a look at your property and be able to answer these three questions in the affirmative.
- You have a building or improvements to a building placed in services since 1987.
- The building or improvements have a cost basis or at least $150,000.
- You will keep the building for at least 3 more years.
Taxable Income that needs to be offset
Second, you won’t be able to receive the beneficial tax savings from a cost segregation study if you’re expecting negative adjusted gross income. We suggest you take a look at the tax-paying history to make sure everything is paid and up to date.
Next, we suggest checking out the taxes on your property. If your business’ property has a lot of short-lived assets like the furniture and light fixtures we mentioned above, then your company probably has a high proportion of nonstructural elements. Generally speaking, this type of calculation for accelerated depreciation works best for buildings of business’ that have a tax base of either $1 million or more. Now, there are exceptions for this. If your company has a high proportion of the nonstructural elements that we mentioned before, than a cost segregation study is possible, but just at a lower tax basis.
The last thing you need to examine before deciding whether you should conduct a cost segregation analysis is the property owner’s tax depreciation schedule. What this means is that you need to determine how the property is currently being depreciated. If it’s depreciated with straight line depreciation (on a 27.5 year to 39 year schedule), then you’ll receive the tax perks from a cost segregation analysis.
Although there are numerous factors when it comes to deciding whether or not to perform a cost segregation analysis, these are a few things that you need to be sure you check into before you make a final decision. We want you to know what you’re getting into and what benefits you can receive from this type of accelerated depreciation before it’s conducted.
You should know that every property and every situation is different, so if you want to be completely sure a cost segregation study will be most beneficial to your business, talk to your CPA and tax professionals so you can make a decision that’s best for you.
We want you to reap the benefits of a cost segregation analysis just as much as you do, so don’t cut corners while exploring if this type of study is right for you.