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 Benefits:
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.
Cost Segregation Analysis
Please provide us with the following information, which will allow us to determine if your property will benefit from a Cost Segregation study!
Cost Segregation Calculator
The Cost Segregation Savings Calculator estimates your federal income tax savings and provides:
Cost Segregation Experts
Gian Pazzia, CCSP
CJ Aberin, CCSP
Malik Javed, CCSP
Eddie Price, CCSP
Lester Cook, CCSP, ASA
John Hanning, CCSP
Cost Segregation Webinars
Overview of Cost Segregation
Bonus Depreciation Update
Cost Segregation Resources
Cost Segregation Case Study
Cost Segregation FAQs
What should I consider when selecting a Cost Segregation provider?
Will the company be available if I get audited by the IRS?
Does the company have tax experts that can help if my CPA has questions?
How long will it take to complete the study?
How much will a Cost Segregation study cost?
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The IRS recently released Rev. Proc. 2016-29, which lists automatic method changes and provides procedures for making them. Form 3115’s filed on or after May 5, 2016 must follow the updated rules.
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In an article recently published by the AICPA, Using Cost Segregation in Estate Planning, our subject matter expert, Gian Pazzia, CCSP, details the ability to create permanent tax savings after a death occurs through an often overlooked aspect of the step-up in basis tax law.