How a Cost Segregation Study Can Help You Generate Liquidity
By Rolando Garcia JD , CPA Shareholder , Doeren Mayhew
If you have purchased , constructed or remodeled any kind of real estate recently , a cost segregation study could be the key to help reduce your federal and state income tax burden . Due to its complexity , a cost segregation analysis is often overlooked as a tax planning strategy , but legislation included as part of the Coronavirus Aid , Relief , and Economic Security Act ( CARES Act ) makes it a very noteworthy tax-savings opportunity for businesses exploring ideas to generate liquidity during the ongoing pandemic .
What Is Cost Segregation ?
Cost segregation is an analysis of the components and sub-components of your real estate property ( commercial or residential ), where reclassifying such components into different classes allows for their depreciation deductions to be accelerated . Typically , a commercial property is depreciated over 39 years , while residential properties are depreciated over 27.5 years . Treating some components as personal property or land improvement provides an opportunity for depreciation to be accelerated over much shorter periods – between five to 15 years – which can generate a significant tax benefit .
Favorable Tax Changes
The Tax Cuts and Jobs Act ( TCJA ) expanded the availability of bonus depreciation to qualified property placed in service before Jan . 1 , 2027 , and increased the expensing allowance to 100 % for qualified property placed in service after Sept . 27 , 2017 , and before Jan . 1 ,
10 VIEWpoint Issue 1 | 2021