Is Cost Segregation Worth the Effort?

Due to the current COVID-19 pandemic, companies worldwide are conserving cash and aiming to reduce their equipment purchases. One downside of this is that they may not be able to claim the amount of depreciation tax deductions like they did before.

What can be done in a situation like this? A cost segregation study!

This will help in accelerating depreciation deductions on specific items, which results in reduced taxes and increased cash flow. In addition to this, the Tax Cuts and Jobs Act (TCJA) has enhanced some depreciation-related tax breaks, which makes this cost segregation study worthwhile. Here’s everything you need to know:

What is a Cost Segregation Study?

When real estate is being acquired, renovated, or built, taxpayers tend to overstate the property’s amount, resulting in limited depreciation deductions. Cost segregation reclassifies your assets by maximizing the property eligible for treatment. This detailed study is conducted by a real estate firm in unison team of expert engineers and architects to reclassify your assets for depreciation purposes into one of four categories:

  1. Personal property
  2. Land improvements
  3. Buildings
  4. Land

Once a relevant category is chosen, real estate professionals will analyze and decide which assets qualify for special tax benefits.

Why is Cost Segregation Study Done?

This study aims to identify all the costs related to purchasing and maintaining your property and then segregating them to increase cash flow. This division and segregation of the purchase price from the total cost enable you to determine each component’s depreciation value in the building. For example, electronics tend to have a faster depreciation rate than land.

When To Conduct a Cost Segregation Study

A cost segregation study can be particularly beneficial for commercial property owners if done correctly and at the right time. If you’ve recently purchased or invested in a property, it’s a smart idea to ensure your accounts are audited before establishing the infrastructure.

What Are the Benefits of This Study?

  1. Increased Cash Flow: A segregation study helps generate immediate cash flow by accelerating depreciation tax deduction.
  2. Write Off:The property’s components and leasehold improvements will be quantified, which ensure easy write-off in case of replacement or renovation.
  3. Review:Provides an in-depth third-party review and analysis to ensure that you enjoy maximum benefits.

Are you looking for cost segregation experts? We’ve got you covered! Our experts will help identify potential methods for reducing your taxes. For a  free consultation, call us today at (775)-298-4122.


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