Post-Purchase, Remodel, or Construction: Look-Back Studies
A Study can be completed any time after the purchase, remodel, or construction of a property. In fact, current Internal Revenue Service procedures make it easy to go back and claim missed depreciation on assets acquired as far back as 1987 without amending prior tax returns.
Cost Segregation is a strategic tax savings tool that allows companies and individuals who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
In general, it is easy to identify furniture, fixtures, and equipment (FF&E) that are depreciated over 5 or 7 years for tax purposes. However, a Cost Segregation Study goes far beyond that by dissecting construction costs that are usually depreciated over 27 ½ or 39 years. The primary goal of a Cost Segregation Study is to identify all construction-related costs that can be depreciated over 5, 7 and 15 years. For example, 30% to 90% of the total electrical costs in most buildings can qualify as personal property (depreciated over 5 to 7 years). Reducing tax lives results in accelerated depreciation deductions, a reduced tax liability, and increased cash flow.
Timing is Everything
The ideal time for a Cost Segregation Study can vary depending on a client’s tax situation. We work with clients recommend the best tax planning solution to fit their needs. A free preliminary analysis can help determine the right timing and strategy for any investor.
The optimum time for a Study for new owners is during the year a building is constructed, purchased, or remodeled. This allows an owner to immediately optimize tax savings and accurately classify assets before the building even begins to depreciate.
For investors who are in the planning phases of construction or remodeling, the best time to consider a Cost Segregation Study is before the infrastructure of the building is set. This allows the project’s accountant and construction contractor to accurately track items that qualify for accelerated depreciation and ultimately saves time and money.
Asset Management & Valuation Professionals
Increase cash flow.