What is Cost Segregation?
Cost Segregation is the process of segregating the costs associated with the real and personal property investments in real estate. Real property is depreciated over 39 or 27.5 years versus personal property, which is depreciated over 3, 5, 7 and 15 years.
Benefits of a Cost Segregation Study:
By properly segregating costs, investors, CPA’s, appraisers, engineers, developers and consultants can accomplish a number of goals related to real estate investments:
- Significantly improved after tax cash flows from the project due to accelerated tax depreciation.
- Reduced real property taxes resulting from reclassifying assets as personal property.
- Increased state investment tax credits on manufacturing property.
- Opportunity to claim “catch-up” depreciation on future tax returns for corrections in tax depreciation.
What is eligible for a Cost Segregation Study?
All properties constructed, acquired, or renovated after 1986 qualify under the IRS guidelines. It can be a new building currently under construction; existing buildings undergoing remodeling, restoration or expansion; purchases of existing property constructed anytime, but placed in service after 1986; office / facility leasehold improvements on your current facility and “fit outs”.
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