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Cost Segregation – The Best Tax Advantage Strategy

This tax strategy can help you increase your cash flow and help reduce the current tax liability, both at the same time. If you are looking to hold your hard-earned cash, then say YES to Cost Segregation.

UNDERSTANDING COST SEGREGATION

Cost segregation is one of the best tax-saving tools that can help a taxpayer accelerate depreciation and reduce tax liability if appropriately documented. As per the IRS, a building usually depreciates over a period of 39 or 27.5 years in the case of non-residential properties and 27.5 years in the case of residential properties. Let us imagine you own a residential rental property and do not opt for a CSS. Your property will depreciate based on the straight-line depreciation method i.e. 27.5 years. But, when opting for a CSS, a portion of the assets can be re-classified as personal property which will help depreciate the properties on a much faster time for tax purposes, i.e. 5,7 or 15 years. This helps you reduce your tax burden, thereby resulting in more profits.

GETTING TO KNOW THE FINANCIAL BENEFITS OF COST SEGREGATION

Cost segregation is a way to accelerate depreciation and helps in offsetting passive income. Below is a table that shows samples of an actual CSS for multifamily. The results are based on the use of 100% bonus depreciation as per the TCJA act of 2018 and are for the taxpayers who come under the 37% tax bracket.


After the Tax Cuts And Jobs Act of 2017, the first-year bonus depreciation has increased from about fifty to a hundred percent, depicting how helpful cost segregation studies are for taxpayers. Conducting a CSS helps you get an idea of which assets qualify for a 100% bonus depreciation. Assets that have a tax recovery period of 20 years or less qualify for a cost segregation study. Used properties that were acquired or placed into service on or after September 28th, 2017, and before January 1st, 2021, qualify for cost segregation.



THE BOTTOM LINE

Always make sure conducting a cost segregation study makes sense for you. O’Connor’s cost segregation studies are IRS tested, CPA approved and warrantied for the duration of your ownership of the asset studied! Our studies not only detail all short-life components but also provide a breakout of all Units of Property (UoP) as required in the recent IRS Tangible Property Regulations. We can help you with assets you have owned for years!

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