If you are an owner of commercial real estate, you likely have heard of cost segregation. But perhaps you have not been informed of the incredible tax benefits it offers and how much it can improve your business's cash flow. Many business owners have utilized cost segregation studies to save huge sums of money on their taxes.
How does cost segregation work? If you own a non-residential commercial building. During the first 39 years of ownership, you get a tax deduction of 1/39th of the building’s value each year.
We all know well that most components within a building don’t last 39 years. Over time, the law has evolved to align with this reality. Today, pieces of the building like carpeting, specialty lighting, certain plumbing fixtures and landscaping can be “segregated” from the building.
With cost segregation, an IRS approved technique, these segregated assets can be expensed faster, on a 5, 7 or 15-year schedule, based on their individual depreciable lives – as opposed to being part of the building’s 39-year straight-line depreciation schedule.
This technique gives the building owner significant tax savings, which can be looked at as borrowing money from the government tax-free and being able to use it for whatever you want, making improvements to the building or using it towards your next acquisition.
A cost segregation should be performed as soon as the commercial property is acquired. To maximize tax savings, the study definitely should be performed in the first year that the property is built or acquired. But there can still be significant cost savings for a building placed in service after 8 years, the benefit just decreases the greater the years placed into service.
For more information about cost segregation, and the type of savings you can expect, give us a call today.