Every Dollar Counts: Business Benefits of Cost Segregation

This is a guest post by Brian Wages, senior manager, Specialty Tax Group

Business Benefits of Cost Segregation | Rea CPA

Businesses need to increase cash flow wherever they can, especially in our unstable post-pandemic economy. Cost segregation is a tax strategy that helps business owners save money on the depreciating value of certain property assets. The money you save will increase your cash flow, which can in turn help you maintain your current assets and expand your business.

How Does Cost Segregation Benefit Businesses?

Cost segregation reclassifies parts of your building or property as “personal property.” The reason for doing this is to increase the rate of depreciation, which increases the number of tax deductions available to you as the owner of the building or property.

The tax court recently ruled that certain costs, classified as buildings subject to a 39 or 27.5-year lifespan, should be classified as personal property subject to a five, seven, or 15-year recovery period. The benefits of cost segregation are enormous for businesses. On average, for every $1 million of a 39 or 27.5-year property that is reclassified as a 5 or 15-year property, the present value of the net cash flow (at 8 percent associated with the rate of depreciation) is around $200,000.

Multiply that the number of millions of dollars you can reclassify, and you could possibly generate hundreds of thousands, if not close to a million dollars in cash flow. That money can now go to improving other properties, maintenance, investments, or wherever it is needed in your business.

Can New and Established Businesses Benefit?

Whether you just started your company within the last year or have been established for several decades, you can still benefit from a cost segregation study. The IRS allows a taxpayer to go as far back as 1987 to reclassify personal property items that have been incorrectly depreciated. This change is prospective and no amended returns are required. A change in accounting method can be completed in the year of change to implement the corrected recovery periods.

What Parts Of My Business Can I Reclassify As Personal Property?

There are a wide range of assets that can be reclassified as personal property. They may include:

  • Recently constructed facilities
  • Renovations, remodels, restorations, or expansions
  • Acquisitions (current year or lookbacks)
  • Tenant leasehold improvements

A cost segregation specialist can perform an analysis on your business to find potential deductions.

How Can I Start Cost Segregation for My Business?

The first step in starting cost segregation for your business is to contact Specialty Tax Group (STG). We will perform an analysis on your property, followed by audit-ready deliverables, and help with implementation, so you can benefit from our services and your newfound tax deductions as soon as possible.

Contact Specialty Tax Group today to speak with one of our cost segregation specialists.

by Brian Wages, Specialty Tax Group (Alpharetta, GA)