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Advantages of Cost Segregation

Quite often, property owners grumble that their holdings beg for a taste of their money? This is due to the fact that trouble comes in the shape of property taxes. Be it a wise businessman or a normal layman, his fears of property tax bugs him to the core. He may think that he shells out gobs of money to pay his overbilled taxes. But, on the flip side, governments and agencies scavenge for money to run the country. In a nutshell, money plays a vital role in everyone’s life and is the lifeline of businesses.

Sandwiched between your property and tax laws, you whine with a squeak for help. Seeking help may give away many solutions. But, how to find a worthwhile solution for all your tax troubles? The answer is cost segregation methodology. Perhaps, it sounds weird to you. Believe it or not, it gives out solutions galore. So, let’s buckle up and set on our property tax ride towards a new proposition.

Cost Segregation Study

Cost segregation study is a piece of your property tax puzzles. Being perplexed by lower return-on-investment, you plunge on a deep thinking. Has anything crisscrossed your brains, is rather a different story. But, think about an end to all such mental worries. That too, cost segregation study sticking out its helping hand.

In the eyes of tax reviewers, cost segregation is not a child’s play. Property estimators go back to the date when your property was put up and set their eyes on blueprints, contracts, job reports, invoices, etc. They call up builders and developers who’ve been roped in for construction of your property. They collect spending data based on every aspect of construction such as material, plumbing, electrical, and so on.

Attention to detail and constant prodding for building specs bring out actual cost estimation of your property. Categorically speaking, they segregate cost components and swell them up to total allocated cost that has to reconcile with the actual cost of your property. To go a step further, they smooth out the study by classifying your property as either § 1245 or § 1250 property.

Advantages of Cost Segregation

1. An easy tool to accelerate depreciation

Do you know that you can avail tax deductions for your aging assets? Yep! Your carpet, fixture, landscape, and the like wear out in the long run. As a result, your buildings depreciate in value overtime which should reflect in your annual property tax. If not, it would knock down your regular cash flows you get through them and eventually, end up in a capital loss. To do away with such cash cut-downs, grip on to cost segregation study for support.

According to the US tax law, residential properties depreciate over 27.5 years, while nonresidential property depreciate over 39 years. With cost segregation study in handy, you may bring down depreciation lives of your assets. Instead of waiting eon years to enjoy tax benefits to the fullest, you may make quick bucks in a shorter time by scaled down depreciation rate.

2. A gateway for tax deferral

People often vie for easy money. Having invested on a number of properties, you may be heaving with property tax burdens. Why not defer tax? Perhaps, earning a reward out of easy means is a pure bliss for you. Like it’s been already said, cost segregation cut-shorts depreciable lives of assets. Which means, you reap the reward for just giving a shot. For instance, if you carry a property worth $1,250,000, then a five-year depreciation totaling $648,244 will make up a tax deferral of $226,885 for five years down the line. Quite interesting, right?

3. A benchmark to bet on accuracy

If you want to cost segregate your newly-built property, then engineering “take-offs’’ basically have the upper hand to get accurate results. Normally “take-offs” in construction lingo translates to a bunch of material and labor that goes for a project completion. What cost segregation experts do is that they fish out the mixed bag of cost estimates and rather pull up cost allocations with regards to project items such as furniture, equipment, etc. This strategy chucks out false cost data in due course and adds up accurate cost allocations. At last, you get a more refined cost estimate of your property. Check this out! The more accurate your cost estimate is sounder is your chance of staying away from property tax audits.

4. A bait to catch up depreciation

Do you have any plans to sell your property? If so, is catching up depreciation ringing a bell to you? If yes, do have a check at this. If you own a property for a longer time and when time passes, the fact that your property qualifying for depreciable tax rewards escapes your mind. Then, don’t worry! It’s not too late. Opt for cost segregation study and you can still hope for recapturing tax savings for depreciation at any time. As a matter of fact, all properties added from 1987 are valid for reclaiming tax credits since 1996. And, your property would never miss out raking in profits.

Blog Author

Patrick O’Connor, MAI, Owner and President
Patrick O’Connor has been active in reducing property taxes, providing expert witness testimony and appraising commercial real estate property since 1983. Pat is active in publishing analyses and data with respect to the real estate market, while being a highly regarded media spokesperson for the real estate community. He holds a MAI, the highest achievable designation from the Appraisal Institute, and is a licensed senior property tax consultant. Pat earned a Master of Business Administration from Harvard University. In 2001, he authored the first definitive consumer guide to Texas property taxes, Cut Your Texas Property Taxes.

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