What if this could be the year you take that large on your income tax return? You could possibly get thousands, and possibly millions in positive cash flow. If this sounds too good to be true, we can assure you that this happens every day. A cost segregation study is a type of analysis that is completely in compliance with all U.S. tax code regulations and recommended according to the Journal of Accountancy.
Cost segregation makes this possible with an in-depth analysis into accelerated depreciation. So, instead of depreciating your commercial building over three or four decades, you can do it much sooner.
So How does this Work?
By performing a cost segregation study on your assets, it can re-classify components and improvements of your commercial building and personal property. A cost segregation study can accelerate depreciation from 39- or 27.5-years, to 15-, 7- or 5- years. So, you’ll get more depreciation of your property sooner, thus receiving greater tax savings at the same time.
To perform a cost segregation study and accelerate your depreciation, the analysis segregates each component of your building and your improvements between real and personal property.
According to the Modified Accelerated Cost Recovery System, (you probably know this as MACRS) each of these three categories has different recovery periods. With this type of analysis, your property construction methods, materials and building components will be explored. Then, your building components and improvements will be identified so that your property can be reconfigured for accelerated depreciation.
So, why should you conduct this type of analysis on your property? Well, without a cost segregation study, your accountant will only be able to use straight line depreciation. This type of depreciation is the 39- or 27.5-year depreciation we were talking about earlier. The straight line depreciation method also doesn’t result in the substantial tax benefits.
Instead of straight-line depreciation, the cost segregation study provides your accountant with the tools needed to establish 5-, 7-, 15-, and 27.5- or 39-year depreciation schedules. So why should you want this? It results in faster depreciation of your property and also substantially increases your tax savings, that’s why.
Usually, you won’t be in your office building for 39 years, so why not depreciate parts of this asset on a 7- or 15-year schedule instead? With the money use save using this method of accelerated depreciation, you can pay off your property sooner or invest it elsewhere.