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.
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