ELECTION YEAR: Should I Wait to Do a Cost Segregation Study?

     In the midst of an election year our clients started to ask us: "Should I wait to do a cost segregation study until after Election Day?" The answer is a resounding no! Here is why taking action now is imperative..... 

Cost Segregation on  a Free Standing Retail Building

     In 2022, our Client purchased a retail building in Colorado for $2,000,000. Using land allocation of $400,000; the depreciable basis was $1,600,000. If using the 39-year straight-line depreciation, the tax deduction would have been $41,026 per year. Our Client decided to engage the Cost Seg America team to perform a cost segregation study.

     The Cost Seg America team was able to identify $752,000 of the asset costs to be reclassified over 5, 7 and 15 years (47% of the depreciable basis). By utilizing this study and electing 100% Bonus Depreciation, the client went from a $41,026 depreciation deduction in year one to a $752,000 depreciation deduction (or passive loss) in year one. Our Client is a Real Estate Professional, so this significant tax deduction was used against ordinary income.

Equal Treatment of Components

     Every component of a property (straight-line and accelerated) has value no matter how small. Our detailed level study, per Approach 1 and 2 from the IRS Cost Segregation Audit Technique Guidelines, assigns a value to each and every component of the building irrespective of whether the building is acquired or new. 

    What does it mean for you? Our study will provide you with maximum benefit from accelerated property and complete detail on the straight-line property components. Other cost segregation providers tend to cherry-pick the easy components of a property and bundle the rest, often leaving significant money on the table and exposing their clients to scrutiny in the event of an IRS audit. 

For over 22 years, our clients have maximized their tax savings and slept well at night.

"The information contained in this newsletter is meant for guidance purposes only and does not in any way constitute legal or tax advice. Readers should seek advice from their CPA or Accountant in relation to information contained in these articles."