Cost segregation planning can be confusing when you don’t understand what it means when you should use it, and what it can do for your business or clients. Understanding cost segregation planning is a tool you can use to get a significant cash flow, a decrease in tax liability, and the ability to defer taxes, and an opportunity to reclaim past depreciation deductions.
What is cost segregation planning?
Cost segregation planning is a commonly used strategic tax planning tool that allows companies and individuals who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow, accelerate depreciation deductions, and defer tax.
Cost segregation services are primarily used to reduce depreciable costs in buildings that are 27.5-39 years old.
When should I do a Cost Segregation Study?
The best time to do a study is usually after a remodel, immediately after the purchase, or construction of a property within the first year. This will help you get maximum tax benefits.
Even if your building was purchased, built, or remodeled a few years before, you can still benefit from a cost segregation planning study.
What Items are Reclassified in the Study?
-Appliances
-Flooring
-Countertops
-Signage
-Lighting
-Cabinetry
-Landscaping
-Sidewalks
-Parking lots
What Properties Qualify?
There are a lot of different types of properties that qualify for a cost segregation planning study. Office buildings, retail centers, banks, restaurants, grocery stores, and auto dealerships can all qualify. Golf courses, theaters, apartment buildings, manufacturing facilities, and hotels/motels can qualify as well. If you are not sure if your building will qualify for a study, you can consult a tax engineering firm.
How Long Does a Study Take and What Documents Do I need?
On average, a study takes 1-2 months or 30-60 days. How long a cost segregation planning study takes is usually dependent on how large the project is, and if all the documents are provided upfront.
When starting a cost segregation planning you will want to have your documents ready to get the study done efficiently. You will need:
-Construction contract & budget
-Architectural drawings
-Contractor’s payments through the project
-Change orders
-Contractor final payment
-Final Project costs
Who Should Conduct My Study?
You should have a professional with experience in engineering, architecture, construction, and tax accounting to do your study. Engineered Tax Services will take care of all your tax needs. We are dedicated to helping you uncover potential tax-saving and increase cash flow through reclassification and depreciation of property.
Engineered Tax Service is dedicated to helping businesses with the best cost segregation planning services.
