All You Need to Know About Cost Segregation

If you’re concerned about strategic tax planning, you need to learn about cost segregation. This is a financial tool that allows you to evaluate the value of money that goes into construction, renovation or remodeling projects. This allows companies to increase cash flow by deducting the money lost in depreciation and deferring state and federal income taxes.

The Study of Cost Segregation and How it Works

Any real estate property constitutes an architectural structure with separate interior and exterior parts. The components in the building’s interiors and exteriors incur taxes; about 20-40% of those fall in tax brackets that can be written off sooner than the entire property.

Cost segregation allows you to identify all costs tied to the purchase and maintenance of the property and segregate them to improve cash flow. By dividing and separating the purchase price or construction cost of the property from the total amount, you can understand how individual components in the building are depreciating. For instance the electrical appliances installed in a house will depreciate faster compared to the land that it’s built on.

You can also separate structural blocks such as the cost of foundations, HVAC fixtures, windows, etc. This allows you to claim a loss deduction when any one of these is replaced.

Estimating Cost Segregation Savings

The cost segregation savings calculator includes money that you’re saving by deferring federal income tax and gives:

  • The tax deductions that you’re getting
  • The additional cash flow in present and future accounts
  • Net current property value for the next 10 years
  • An estimated cost allocation of 5, 7, 15.

When Should You Conduct Cost Segregation

Commercial property owners can benefit from cost segregation if they get it done at the right time. The optimal time period is when you’ve newly invested in a real estate property or purchased a commercial building. It’s best to get your accounts audited before the infrastructure is established. This will ensure significant cash flow benefits for the future and a shorter depreciable tax life.

Reducing taxes and staying on top of property depreciation are two prominent traits of shrewd real estate investors. If you’re looking for cost segregation experts who specialize in this service and offer free consultation, call us today at (775)-298-4122.


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