Use Cost Segregation To Your Benefit
What is Cost Segregation?
Cost Segregation is a strategic tax savings tool that allows individuals and companies, who have constructed, purchased, expanded or remodeled any kind of real estate, to increase their cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
In general, it is easy to identify furniture, fixtures, and equipment (FF&E) that are depreciated over 5 or 7 years for tax purposes. However, a Cost Segregation Study goes far beyond that by dissecting construction costs that are usually depreciated over 27 1⁄2 or 39 years.
The primary goal of a Cost Segregation Study is to identify all construction-related costs that can be depreciated over 5, 7 or 15 years. Reducing tax lives result in accelerated depreciation deductions, reduced tax liability, and increased cash flow.
Conducting a quality study involves review of cost detail & blueprints, site inspection, photo documentation, cost estimation, and preparation of the report.
Assuming a combined tax rate of 41% and a return on Investment factor of 8%, every $100,000 of costs shifted from 39-year property to a 5-year property, creates a present value tax benefit of approximately $22,000. Every $100,000 of costs shifted from 39-year property to 15-year property, creates a present value tax benefit of approximately $12,000.
Who Can Benefit?
Any structure used for business or as rental property is eligible for the benefits of Cost Segregation. Any leasehold improvements or renovation costs can also qualify.
When Can You Benefit?
Timing is Everything!
The ideal time for a Cost Segregation Study can vary depending on an owner’s tax situation.
Contact Palma Financial Services, Inc. today to learn more on how you can benefit today! We can help guide you through the benefits and process so that you aren’t left out of this great tax savings technique.
Call: (925) 307-5454 or simply use our chat window in the corner to reach us.