Incentives for Cost Segregation Studies

[Julio Gonzalez]

Did you know that the tax code offers many incentives for real estate property owners that have a cost segregation study performed, thus allocating costs to 1245 property?

A Cost Segregation study is an IRS approved federal income tax tool that increases near term cash flow by utilizing shorter recovery periods for depreciation to accelerate return on investment. For newly constructed, purchased or renovated properties and also retroactive generally over the last 10 years, building components are properly classified into individual units of property and accurate recovery periods for computing depreciation deductions. The study identifies with forensic engineering detail the immediate Bonus Depreciation 5, 7 and 15-year personal property class lives qualifying portions of a building that are normally buried in 27.5 year residential or 39 year commercial categories.

There is the obvious benefit of accelerating the depreciation, shortening the recovery period. This reduces your current taxable income, and puts more money in your pocket today. However, there are also multiple other benefits available by performing a cost segregation study. Here are a few incentives as noted by the IRS:

• 168(k) - Special Allowance for Certain Property (Bonus Depreciation)
• 179 - Election to Expense Certain Depreciable Business Assets Other incentives included in the tax code, however, may reduce the need for a taxpayer to perform a cost segregation study because they give preferential treatment for certain qualifying 1250 property such as 168(e)(6) - Qualified Improvement Property

Have you utilized either of these incentives as part of your cost segregation study?