How to Realize Tax Benefits with Cost Segregation

February 2, 2022

If you are an owner of commercial real estate, you likely have heard of cost segregation. But perhaps you have not been informed of the incredible tax benefits it offers and how much it can improve your business’s cash flow. Many business owners have utilized cost segregation studies to save huge sums of money on their taxes. In short, if you are not taking advantage of this tax law, you’re gravely missing out.


What Is Cost Segregation?


Cost segregation is a tax planning law that allows owners of commercial real estate to reallocate their assets by separating personal property assets from real property assets. Certain items can be classified as personal property or improvements to the land that enable the business owner to claim an accelerated depreciation, allowing for a big tax break. Through a cost segregation study, you can claim that many of the property’s nonpermanent assets are depreciating at a faster pace.


What Types of Properties Are Eligible for a Cost Segregation Study?


The list of properties that are eligible for a cost segregation study is practically endless. Restaurants, office buildings, gas stations, shopping centers, factories, medical practices, and apartment buildings are just a few of the types of businesses that have been known to take advantage of cost segregation.


What Items Are Indexed in a Cost Segregation Study?


Items eligible under this tax planning law include nonpermanent components of a commercial property that are susceptible to wear and tear. Typical items included in a cost segregation study are security systems, office supplies, plumbing, electrical work, engineering fees, builder overhead, landscaping, and even carpeting and furniture. The list doesn’t stop there. Anything that can be reallocated from commercial property to personal property should be investigated in the cost segregation study.


When Should a Cost Segregation Be Performed?


Although not required, a cost segregation should be performed when the commercial property is acquired. In many cases, it can even be done after the acquisition year.


For more information about cost segregation studies, please contact your LMC professional. Our firm is available if you have questions related on this topic.


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