Have
you constructed, renovated or acquired
a building within the last eighteen
years? If your answer is ‘yes’,
you may have paid too much federal
income tax.
Through what is known as a ‘cost segregation
study’, you may be able to reduce your
tax liability and therefore, increase your
cash flow. Cost segregation studies provide
the data for quicker asset write-off that
is not available without the study.
Cost segregation studies are an engineered
based methodology that enables the taxpayer
to ‘extract’ the costs of personal
property within a constructed, substantially
renovated or acquired building and accelerate
the depreciation of the personal property.
The principle goal of a cost segregation study
is to increase your cash flow by reducing
your income tax liability. As the components
of a building are reclassified into their
proper class “lives” according
to government legislation, case law and IRS
revenue rulings and procedures, the tax savings
can be substantial with the accelerated depreciation
deductions.
Commercial real estate, under IRS rules, must
be depreciated over a 39 year life. A cost
segregation study ‘extracts’ or
reclassifies the 39 year deductible life
to the costs of the building’s floor,
roof and walls as 39-year section 1250 real
property and then other costs such as site-improvements
(sidewalks and landscaping) as 15-year deductible
section 1250 real property; carpeting and
decorative lighting as 7-year deductible
section 1245 tangible personal property and
computer associated items as 5-year deductible
section 1245 personal property. This could
result in substantial tax savings.
Furthermore, the IRS provisions allow you
to “catch up” on this missed
depreciation in the year you complete the
study. There is no need to file amended returns.
Cost Segregation studies have been around
for quite some time. In the past, only a
few accounting firms offered the service
and mostly to large companies with significant
real estate holdings. Within the last few
years however, certified public accountants
have become qualified, at a very reasonable
cost, to provide this service to smaller
companies and property owners.
For more information on Cost Segregation and
how you can benefit, please consult with
your tax advisor.
Tax Topic provided by Dottie L. Lloyd, CPA,
Tax Manager, Jones and Company, Ltd., Paragould,
AR
|
