Do you own the physical property that houses your business? If you do, todays blog is going to be especially important. If you don’t, you still need to understand what cost segregation is. There may be a time you do own your own building. When that time comes, don’t do what thousands of other businesses have done in the past. Leave money on the table!
Recent IRS rulings allow commercial property owners to use shorter lives and accelerated methods for computing depreciation for tax purposes. This new application includes all categories of buildings purchased or built since 1986: including new, existing, & renovations. The increased depreciation is used as a deduction against ordinary income taxed at higher rates. The potential for an immediate increase in cash flow from reduced taxes can be significant. One of the reasons for the immediate cash flow is that 100% of the increase in depreciation, starting from date of purchase, through the current tax period, can be deducted on your current year tax return. It is not necessary to file amended returns.
If the increase in depreciation creates a loss for tax purposes, the loss can be carried back 2 years and forward 5 just like any other tax loss. You can use your own CPA or tax attorney to complete the appropriate tax forms using the depreciation provided from our study. However, you must have the technical experience and systems to properly perform the cost segregation studies recognizing the highly technical tax rulings, IRS guidelines, and court cases to prepare an “accurate engineered cost segregation study.” You can understand why it is not common for an accountant, CPA or tax attorney to perform the study required by the IRS. Most businesses, such as yours, have their own CPA or tax attorney, and this process does not interfere with that relationship: rather, it is ancillary to their work.
You must hire a firm that will “benchmark” with your CPA the potential tax savings at no cost to you. Upon agreement to proceed, they complete the study which usually takes four to six weeks. They then provide your CPA or attorney with the revised depreciation numbers and the cost segregation study report.
In many instances depreciation is accelerated by as much as 50% creating an immediate windfall and an enormous savings in the future. Imagine being able to double deductions for your business property.
Now understand, cost segregation is not cheap. The study can cost thousands of dollars. Yet, it can be recouped in a matter of a year, in many cases. Especially if you go back and file amended returns based on the results of the study. If you need a recommendation, e-mail me. I know a few that are very good at what they do.