Common Cost Segregation Questions: Depreciation.
The concept of depreciation is crucial to your cost segregation strategy. Even if your property isn’t decreasing in value, you could qualify for a deduction.
Q. How does cost segregation affect depreciation to help lower my business’s property taxes?
A. The concept of depreciation is crucial to your cost segregation strategy. The IRS allows tax deductions based on the perceived decrease in real estate value—even if that perception isn’t entirely correct. So, even if your property isn’t actually decreasing in value, you may be able to qualify for a deduction.
In a cost segregation analysis, elements of your property fall into two categories
Real Property
This includes permanent immobile things, like the foundation of a building, the ceilings, and the walls.
These real property components depreciate over a period of 27.5 years.
Personal Property
These are things like kitchen cabinets, water heaters, toilets, HVAC units, etc.
The personal property components depreciate over shorter periods — five, seven, or 15 years, depending on the specific element.
How Cost Segregation Lowers Your Tax Bill
Cost segregation will assess the individual assets of your property and accelerate their depreciation, making it possible to deduct more from your taxes!
For example, rather than letting your flooring and your outlets depreciate at the same rate as the real property, you can accelerate their depreciation to 5 years!
Your parking lots, sidewalks, and landscaping can be accelerated to 15-year depreciation.
How Quickly Can You Benefit from a Cost Segregation Study?
Your tax benefits begin in the first tax year and continue throughout the identified assets’ depreciable life. As long as you own your property, a cost segregation study will continue to provide tax benefits every time you replace a building component or take one out of service.
Why M&E Cost Segregation Studies are the Best
· M&E provides engineer-based studies- not the substandard residual studies that most other firms offer.
· We provide exceptional customer service and unmatched integrity before, during, and after the study is done. Therefore, clients come back to us time and again and recommend us to their family and friends.
· Our final reports stand on their own. However, in the event of an IRS audit or if any questions are raised, we will defend our studies at no additional cost.
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