How Cost Segregation Can Increase Cash Flow and Reduce Taxes
Cost segregation studies separate real property into depreciable categories, allowing taxpayers to depreciate property over much shorter periods of time. By taking deductions sooner, owners lower their current-year tax liability and free up more capital.
Are You Eligible For a Cost Segregation Study?
If your business owns or leases real estate, you are a potential candidate. A study is typically cost effective for buildings purchased, constructed or renovated in the past 10 years with a renovation or purchase price of at least $300,000.
How It Works
When you purchase a property, you’ve purchased a building and its components. While the real property is typically depreciated over 39 years (27.5 years for residential), 20-40% of the purchase can often be separated into personal property and depreciated much more quickly (usually 5, 7 or 15 years). This decreases taxes and boosts cash flow.
Key Building Components
Building components that can often be reclassified:
- Flooring
- Signage
- Lighting
- Cabinetry
- Sidewalks
- Parking Lots
- Appliances
- Countertops
- Landscaping
All Buildings Can Benefit
Some of the properties that could benefit from a cost segregation study include:
- Manufacturing facilities
- Office buildings
- Auto dealerships
- Banks
- R&D centers
- Apartment buildings
- Retail centers
- Restaurants
- Hotels & motels
- Assisted living
Bottom Line?
By performing a cost segregation study, property owners can reclaim past depreciation, reduce their tax liability and significantly increase cash flow. Lanigan Ryan can help determine if your business could benefit. Contact us to get started.
