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Cost Segregation
Cost Segregation is a commonly used strategic tax planning 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.
When a property is purchased, not only does it include a building structure, but it also includes all of its interior and exterior components. On average, 20% to 40% of those components fall into tax categories that can be written off much quicker than the building structure. A Cost Segregation study dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27 ½ or 39 years. The primary goal of a Cost Segregation study is to identify all property-related costs that can be depreciated over 5, 7 and 15 years. For example, certain electrical outlets that are dedicated to equipment such as appliances or computers should be depreciated over 5 years.
KBKG goes beyond a traditional Cost Segregation study and will also separate all of the different building structural components (such as the roof, windows or HVAC units) so when they are replaced, a loss deduction can be claimed on them. For leased property, we also separate tenant leasehold improvements.
Cost Segregation Savings Calculator (FREE)
The Cost Segregation Savings Calculator estimates your federal income tax savings and provides:
- Estimated allocation to 5, 7, 15, and real property
- Tax deductions and additional cash flow by year
- Net present value over 10 years and over the life of the property
Enter basic building info and instantly receive the estimated tax savings.
What is Involved in a Cost Segregation Study?
A quality Cost Segregation study evaluates all information, including available records, inspections, and interviews, and presents the findings in a clear, well-documented format. Our process for conducting a detailed Cost Segregation includes a review of any available cost detail for the property, a review of any available blue prints and a physical inspection of the property. If none of this information is available, a Cost Segregation study can still be performed by estimating component values on site.
When should a Cost Segregation study be conducted?
A Cost Segregation study can be completed any time after the purchase, remodel or construction of a property. However, the optimum time for a study for new owners is during the year a building is constructed, purchased or remodeled. 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. KBKG offers a free preliminary analysis that can help determine the right timing and strategy for any investor.
What should I consider when selecting a Cost Segregation provider?
You should always read the bio and resume of the persons signing your Cost Segregation study. Make sure they are certified with...READ MORE »
Will the company be available if I get audited by the IRS?
Any company can give you a Cost Segregation report with results that save you a lot of money; the real question is whether it will stand up to IRS scrutiny. The true value of the fee you pay is how easy (or painful) the audit process goes. Every Cost Segregation company will say...READ MORE »
Does the company have tax experts that can help if my CPA has questions?
There are so many unique fact patterns and situations that can have a tax impact on how the Cost Segregation deductions will flow through on your tax return. A Cost Segregation engineer does not know enough about tax to truly understand how the Cost Segregation deductions will specifically impact you. Using a firm with tax experts on staff will...READ MORE »
Cost Segregation Benefits
Many business owners are surprised to learn of the compelling tax savings a cost segregation study offers. Below is a list of three of the most prominent benefits.
Cash Flow
Generates immediate increase in cash flow through accelerated depreciation tax deductions
Write Off
Quantifies property’s major components and leasehold improvements so they can be written off when replaced or renovated
Review
Provides an independent third-party analysis that will withstand IRS review.