Tax Day has long come and gone, but dedicated CPA firms have already started planning how to reduce your clients’ business tax burden for next year. One powerful, often overlooked strategy is cost segregation, a method that can significantly increase your clients’ cash flow and reduce tax liability by reclassifying assets into shorter tax lives, thus accelerating tax depreciation write-offs.
What is Cost Segregation?
Cost segregation involves identifying and separating construction-related personal property assets from real property assets. Personal property includes items attached to the building or land but is optional for its basic operation. Even land improvements, though part of real property, often have a shorter asset class life and can be reclassified.
How does Cost Segregation work?
Cost Segregation Study can help identify property-related costs that can be depreciated over the next 5, 7, and 15 years. Reclassifying these assets can accelerate depreciation, leading to substantial tax savings.
Seven Key Benefits of a Cost Segregation Study
Maximize Depreciation Deductions: Boost your deductions on new construction or renovations, enhancing cash flow.
Optimize Purchase Price Allocations: Make the most of property acquisitions by allocating purchase prices effectively.
Immediate Tax Savings on Demolition: Write off demolition costs immediately, providing immediate tax relief.
Determine Insurable Replacement Costs: Accurately calculate the true insurable replacement costs after exclusions.
Establish Real Market Value: Assess the real market value after exemptions for property tax purposes.
Recover Past Benefits: Claim lost benefits from previous years without needing to file amended returns.
Tax Savings from Design Tweaks: Achieve significant tax savings through simple design and terminology changes.
Why Should Cost Segregation Matter for Your Clients?
As a CPA, you understand the intricacies of tax laws, financial guidance, and the importance of staying current with economic trends and industry skills. However, the ultimate goal is to meet your clients’ needs by optimizing their tax benefits. One often overlooked opportunity to achieve this is cost segregation, especially with the enhancements to the Tax Cuts and Jobs Act (TCJA) 2017.
Cost segregation allows property owners to accelerate depreciation on commercial properties, reducing the depreciable life from 39 years to 5, 7, or 15 years. This leads to expedited cash flow and significant tax savings. With the TCJA’s bonus depreciation, the benefits are even more substantial.
Enhanced Benefits with Bonus Depreciation
Before the TCJA, taxpayers could deduct 50% of the purchase price of eligible short-life assets in the year of acquisition. The TCJA increased this deduction to 100% for property placed in service after September 28, 2017, and before December 31, 2022. This change includes secondhand property, expanding the opportunities for your clients.
Partnering with National Tax Group
At National Tax Group, we specialize in maximizing tax benefits through cost segregation studies and other lucrative federal incentives like the 179D deduction and 45L tax credit. Our CPA Partnership+ program offers you a turnkey, money-making opportunity to earn referral fees while saving your clients money.
Don’t let your clients miss out on substantial tax benefits. By partnering with National Tax Group, you can enhance your services, broaden your expertise, and boost your client’s financial success. Contact us today to discuss how we can collaborate to maximize your clients’ tax savings and elevate your practice.