Cost segregation is a tax planning tool that allows companies and individuals to increase their cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
The benefits of larger tax deductions from cost segregation studies are: improving cash flow, reducing upfront income tax costs, maximizing annual depreciation, lowering the cost of capital, and increasing shareholder value. However, before you apply a cost segregation study to your property consider these five things:
1. Property Type
The type of property being analyzed is a crucial consideration in cost segregation to ensure that the proper depreciation periods are applied and the maximum tax benefits are realized. Certain property types, such as commercial or rental real estate, may be eligible for accelerated depreciation deductions through a cost segregation study.
2. Asset Classifications
Asset classifications must be correctly identified to ensure that costs are allocated appropriately. The classification process includes determining whether costs identify as land improvements, personal property, or building components. By correctly classifying assets, a taxpayer can accelerate the depreciation of certain assets, resulting in significant tax savings.
3. Applicable Tax Laws
Cost segregation studies must comply with applicable tax laws and regulations, including those related to depreciation, asset classifications, and accounting methods. If the study is not conducted following applicable tax laws, the property owner may face penalties and interest charges for incorrect reporting of depreciation expenses.
4. Detailed Documentation
Detailed documentation is critical to the success of a cost segregation study as it ensures accuracy, compliance, and transparency. Proper documentation includes detailed descriptions of assets, cost allocations, and supporting documentation.
5. Qualified Professionals
Hiring qualified professionals is essential to ensure the accuracy and success of a cost segregation study. This includes professionals with engineering, construction, tax law, and accounting expertise. A team of qualified professionals should perform a cost segregation study to ensure the most accurate results. Our specialty tax consultants use their deep understanding of credit and incentive programs to help clients uncover opportunities to save significant money on their taxes.
Contact us
Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals across the country. Regardless of the complexity of your technology advisory needs, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.