One of the routes to financial independence is via real estate. To fully appreciate the value of real estate participation is to utilize the tax benefits associated with real estate investing.
This week we are revealing one of the best-kept secrets in America!
The benefits of a Cost Segregation Study are undeniable. Cost segregation is a tremendously beneficial and widely used tax strategy for residential development and commercial property owners. This technique can significantly reduce taxable income, which in turn increases cash flow - formerly a tool used by the largest accounting firms and real estate owners. It has become routine among almost every size business! Nearly every person who owns or operates any type of real estate can benefit from using Cost Segregation!
By identifying and placing the various individual assets purchased in a real estate transaction into their proper shorter 5, 7, or 15-year depreciation lives (rather than on a 39-year life for commercial properties or 27.5 years as with residential rental property), you can reduce taxes by up to 70 thousand dollars per 1 million dollars worth of assets invested! An accelerated depreciation schedule gives you higher tax deductions in those early years of property ownership or allows you to “catch up” on prior periods, keeping more actual dollars in your bank account.
With an engineering-based approach report, you can take advantage of these missed tax benefits in the current year without amending past returns. Most tax professionals will inform you your purchase or construction of commercial property results in a 39-year straight-line depreciation (or 27.5 years for residential real estate properties). What they often miss, however, is that most properties are made up of numerous components, many of which can be depreciated over shorter periods of time! Many professionals simply do not have enough experience or expertise to execute cost segregation studies per US Code guidelines correctly, so they miss out on potential benefits entirely! The recent changes in the tax code have made cost segregation more valuable than ever, so being aware of and taking full advantage is vital for
building owners wanting to maximize their property investment.
Your property likely qualifies if it has been acquired or improved in the last 15 years for at least $250,000 or if you’ve had renovations of at least $100,000. IF you’ve had a renovation of at least $100,000, you may qualify for a Partial Asset Disposition which may result in a loss in addition to what has already been depreciated.
Moreover, you can perform a cost segregation study with a property acquired up to 15 years ago and take the missed tax benefits in the current year without amending your returns! A 3115 change of depreciation method form is prepared and used by your tax professional.
With the Tax Cuts and Jobs Act of 2017, the IRS brought back 100% bonus depreciation through 2022, meaning the items identified in the cost segregation study as 5, 7, and 15-year building components can be fully depreciated, resulting in a significant tax reduction!
Removing the original use requirement for buildings acquired and placed in service after September 27, 2017, means new construction and the acquisition of an existing building can benefit from a cost segregation study. By performing a cost segregation study, you can take advantage of the first-year depreciation on earlier life-building components in new construction and acquisitions. With an existing building, this first-year benefit can be as much as a 700%
Buy land; they aren’t making any more of it. – Mark Twain