Sep 20, 2019
The Timing of Cost Segregation
Cost segregation is an invaluable tax savings tool. It allows companies and/or individuals who have constructed, purchased, expanded, or remodeled real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes. Cost segregation studies achieve this through identifying, segregating, and reclassifying personal property assets and land improvement assets which are depreciated over shorter tax lives as compared to the traditional 27.5-year (residential rental property) or 39-year (nonresidential real property) lives.
The ideal time to begin a cost segregation study is when a property is first placed in service. However, a cost segregation study can be performed on any property already in service. IRS procedures allows a change in accounting method to take advantage of misclassified assets without amending prior tax returns. This procedure allows the recapture of the understated depreciation expense for any asset that has been reclassified in previous tax years. Cost segregation can also be used in the event of a like-kind exchange or a step-up in basis that has been recorded.
|TYPE OF PROPERTY||LOW RANGE||HIGH RANGE|
|Assisted Living/Nursing Homes||15%||30%|
|Light to Heavy Manufacturing||20%||60%|
|Gas Stations/Convenience Stores||25%||50%|