Do you own commercial property? Are you familiar with cost segregation? An engineering study could boost your bottom line and increase your cash flow.

Cost segregation is a popular, yet little known application which provides buyers of commercial property with tremendous tax advantages. How? By reclassifying components and improvements on a commercial building from real property to personal property. Why is this so powerful? Because it allows the owner to accelerate their depreciation from the typical 27.5 to 39 years to a 5, 7, or 15 year depreciation schedule. You can see the potential for reduced taxes and improved cash flow.

So what are the rules?

First, does your property qualify? If you bought, built, or remodeled the property after January 1, 1986. You must also anticipate holding the property for at least a few years.

If your property qualifies, you will need to perform a cost segregation engineering study. The best time to have a study completed is when the building is purchased or improved. However, the IRS does allow property owners to catch up on unclaimed depreciation that was not claimed from day one. In order to complete a study, your cost segregation company will probably need the following: 1) your current tax schedule 2) building cost information 3) Change orders.

Once the study is complete (it should take 4-6 weeks), your CPA will be able to complete the required forms to accelerate your depreciation.

That is it in a nutshell. Discuss cost segregation with a qualified CPA and look for a qualified company to provide the engineering study. Depending on the results, you could see thousands of dollars in tax savings.

Labels: cost segregagation, engineering study, tax depreciation