Defining Cost Segregation
Cost segregation is a tool that has been designed and codified by the IRS. The purpose is to allow a thorough and itemized process to document the depreciation of a commercial property. This is typically used to separate the building, land, improvements, and business personal property (BPP) into different categories, instead of having them in one bundle to measure depreciation.
This allows great flexibility and opens the door to using depreciation on current and future tax returns. Instead of gradual depreciation over 39 years for commercial properties to depreciate, or 27.5 years for apartments, cost segregation reveals tangible and personal property that can depreciate in five, seven, or 15 years. This accelerated depreciation can then be used to lower income taxes, typically to a large degree.
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Another benefit is that the IRS has a built-in clause for years of previous undocumented depreciation called a “look-back.” This allows a study of the previous depreciation and then applies it to the current tax year with a “catch-up” clause. Needless to say, this could bring a significant amount of savings. This does require the filing of Form 3115 and 481(a).
While cost segregation can have a strong introductory price, it is a small cost in the long run. It is common for cost segregation to pay for itself multiple times over in just one year, not counting future savings. This can be bumped up even further when bonus depreciation is added to the mix.
How to Begin?
You can start by using our free savings calculator to get an estimate of how much you could save. Or you can reach out for a free estimate using our price quote feature. For more information, call 1-877-375-4291 and speak with an expert about your possible cost segregation journey.