What if I told you that, if you own real estate, you may be sitting on a mini treasure? The only thing missing is the key – and I know where you can find it.
If you have purchased, constructed, remodeled, or expanded your business’ property since 1987 or have updated an existing property at a cost greater than $750,000; and you have not conducted a cost segregation study, you may be missing out on a great opportunity to realize substantial tax savings.
What Is A Cost Segregation Study?
A cost segregation study is typically a professional assessment of a property owner’s personal property assets with the goal of identifying construction-related costs. Because construction-related costs have a shorter tax life than a building (five-15 years versus about 39 years, respectively), a property owner can realize significant savings by itemizing a property’s sections and components.
How Can A Cost Segregation Study Save Business Owners Money?
You know how good it feels to find a forgotten twenty dollar bill in your pocket? Well, cost segregations are kind of like that.
Identifying and claiming as many qualified depreciation deductions as possible is only part of the equation. It’s what you do with those depreciation deductions that are really exciting. Here are three examples:
- Due to the time value of money, the advantage of your front-loaded deductions will be quantifiably greater than if the deductions were to be spread out over longer periods of time using a slower depreciation method.
- Alright, now let’s imagine that you just got off the phone with your office manager who called to tell you that a building component broke and now needs to be replaced. Prior to the completion of a cost segregation study you would have dreaded these calls because you, as the property owner, would have had to eat the cost of the broken component as well as the cost of purchasing a replacement. If you did opt to conduct a cost segregation study however, you now have the option of writing off the broken building component’s remaining tax balance.
- Finally, additional savings can be found in the form of your local tax expenses. If you move forward with a cost segregation study, you may enjoy lower local realty-transfer taxes, which are oftentimes imposed on building owners and are based on a building’s fair market value. So when your cost segregation study reduces a building’s value, it will also produce a reduction in the amount of transfer taxes due.
To get more information on how a cost segregation study could work for you, email Rea & Associates.