It has never been more critical for property owners to accelerate the depreciation of their building components than it is now, thanks to a change in IRS tax law that reduces the value of bonus depreciation over the next few tax years.
Let’s Start with What is Cost Segregation
You or your company own commercial property. It could be a warehouse, office building, retail space or residential investment. The IRS allows you to depreciate the cost of that building over 27.5 (residential) or 39 years (commercial).
But what if you could accelerate that depreciation and save on taxes? Certain components of any building can be depreciated over 5, 7 or 15 years. That includes non-structural elements like lighting, furniture, HVAC, carpeting, wall coverings, window treatments and more.
Those savings could be pumped back into your business for more R&D, marketing or retention of employees.
How Does Cost Segregation Work?
Partnering with a tax advisor that specializes in cost segregation studies can save tens of thousands of dollars. The tax advisor conducts a building analysis and reclassifies components into their proper categories, accelerating the depreciation on much of your property.
Make sure you work with a tax advising company that has experience and expertise doing cost segregation studies, one that understands both engineering and IRS regulations that can withstand an audit – or better yet, prevent one.
How Much Is Cost Segregation Worth to My Business?
Every business is different. Many businesses can benefit from this powerful IRS-approved tax avoidance tool. Here’s one example (yours may be different):
Without Cost Segregation
- Property Value = $25 million
- Annual depreciation = $100,000
- Taxable income = $400,000
- Taxes paid (30% rate) = $120,000
With Cost Segregation
- Property Value = $25 million
- Annual depreciation = $300,000
- Taxable income = $200,000
- Taxes paid (30% rate) = $60,000
What About Bonus Depreciation?
Some items may be written off faster using bonus depreciation, amounting to 60% in 2024 and 40% in 2025. That number declines to 20% in 2026 and zero in 2027, so it is important to take advantage of it now.
How Does Cost Segregation Work?
Once you partner with a national tax strategy group with expertise in engineering and applicable IRS regulations and experience in cost segregation studies, it will conduct a meticulous analysis of the structural and non-structural components of the building. The tax strategy company will reclassify those elements of the property – HVAC, electrical systems, plumbing, floor coverings, window treatments, furnishings, fixtures and finishes, and more – into categories with shorter depreciation schedules.
A critical element of your partner’s work will be to comply with all IRS guidelines and avoid an audit.
How Vital is the Cost Segregation Specialist?
It is difficult to overstate the importance of a qualified tax consultant in this process. Their engineers and accountants possess the expertise required to do a cost segregation study that will withstand IRS scrutiny. Their knowledge of shifting tax regulations is vital to slashing tax liabilities while steering clear of an audit.
National Tax Group has conducted hundreds of cost segregation studies, earning a 100% success rate with the IRS while savings clients millions of dollars. Contact us today for an obligation-free assessment to maximize your benefits.
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