Want to make more money than the income you earned from your tenant’s rent? How about savings from tax payments? Yes, you can with cost segregation. If you haven’t heard of it before, then you just wasted a good amount of money. Time to plug that drain.
What is cost segregation?
In a nutshell, it’s a process of identifying and reclassifying components of a commercial property and assigning a shorter depreciation period for each. Think of it this way, when you buy a commercial property, it is classified to have a 39-year depreciable life. But do you really think the roof would last that long before it will require replacement? What about the wall partition or the electrical system?
By reclassifying these components, they can be assigned a 5, 7, and 15-year depreciable life, in which periods you can enjoy tax deductions that the IRS encourages property investors to enjoy. At the same time, you will have faster returns of investment.
Why take advantage of cost segregation study?
Reduced tax payments
Depreciation of a property is tax deduction based on a building’s wear and tear over time and allows an owner to recover the costs of the wear and tear. In a straight line method, a property is treated as a single asset that depreciates over 39 years. A $100,000 property, for example, will have a depreciation of $2,564.10 per year.
If you have a cash flow of $1,000 and take out the depreciation from that amount, you will have a passive income or loss of $1,064. Based on this number, your income of $1,000 essentially becomes non-existent to the IRS, which translates to no tax to be paid.
So imagine if that depreciation value is reclassified into 5, 7, and 15 years? For 5 years, your $100,000 property will have a depreciation of $20,000, 7 years at $14,285.71, and 15 years at $6,666.67. And this is just calculating the entire structure. If calculations are done based on different components, the numbers could be higher.
Cost segregation lets you maximize tax deductions that will result in wealth preservation. When you don’t pay Uncle Sam, you get to keep your income. With an accelerated tax deduction of $20,000 for a 5-year period, for example, you get an additional tax deduction of $17,435.90 instead of the measly $2,564.10 per year over the 39-year period. If you put in the 50% combined federal and state tax rate to the equation, you will have a wealth preservation of $8,717.95.
A cost segregation study also provides you with additional tax benefits by allowing you to expense maintenance, repairs, and dispositions as you make improvements to your property.
Why work with Cost Segregation Specialists instead of CPAs?
The IRS made it perfectly clear that cost segregation should be engineering based, conducted by professionals skilled in the construction industry. A CPA is neither an engineer nor an architect, which makes them unqualified to perform a cost segregation study as specified by the IRS.
If you file for cost segregation based on an accountant’s guesswork, you could be looking at penalties and possible criminal charges based on what is considered “rogue” filings. Why risk it?
Why work with Segregation Holding?
Segregation Holding guarantees a thorough property assessment carried out by qualified engineers. They perform a true forensic study using methods that are approved and accepted by the IRS, and with a guaranteed minimum ROI. What’s even better is that their services include a 3-year follow-up study with updates included.
It’s the best deal you will ever get for a cost segregation study. So contact Segregation Holding now.