How Can Cost Segregation Help Minimize Your Tax Burden
One of the most thriving industries these days is real estate. For many investors, maximizing their returns or make their income flow quickly for their commercial real estate project. Projects like these often include buying a property, remodeling, expanding or constructing any kind of real estate. In order to do this, they will need a professional to assist them with cost segregation.
What is Cost Segregation?
Cost segregation is an IRS approved method that allows investors to increase their cash flow or maximize their returns by accelerating the deductions or the depreciation as well as deferring the federal and state income taxes.
If you, an investor, purchases a property, the value does not just come from the structure itself. As much as 20% to 40% of both these components fall under tax categories that can be written off much quicker than the structure itself.
Any type of commercial property can be a candidate for cost segregation, especially when it has been in service after December 31, 1986. Note that any size also qualifies; however, lower valued properties might not be good candidates. Usually, it makes more sense for properties to have a $1 million depreciate cost basis or even more.
What is Cost Segregation Study?
The cost segregation study is the first step in accelerating depreciation. The preliminary analysis will need every bit of information.
They will need data for exterior and interior components and the building structure itself. For this, they will send a team to physically inspect the property. Any available records will also be necessary. If you have any review of cost details and important blueprint for the property, it’s important you share it with your specialist.
Most of the time, you will need to schedule an appointment with a specialist as they’ll have a physical inspection. However, some can do it via the website.
The end result is a well-organized data of a detailed breakdown of costs.
When is the Best Time for a Cost Segregation Study?
Anytime after you made a massive real estate project is good.
For new owners, the optimum time would be a year during the remodeling, purchase, or construction.
The Bottom Line
As a businessman or an investor, you owe it to yourself to know whether you qualify to get these large tax savings. Also, finding a capable specialist in the field will make all the difference in the world. You’ll be able to get at least 5 times the cost of the reform, giving you bigger savings. It will also effectively improve your cash flow, which is of big importance to new investors.
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