The Potential of Cost Segregation For You
Here’s a hypothetical scenario. You recently bought a building that you’re planning on renovating into your dream business – a breakfast diner. You’ve poured thousands on new appliances, lighting fixtures, and of course, expensive kitchen equipment. No one said starting a business is cheap! After meeting with your CPA, he/she advises you on getting a cost segregation study done to accelerate your depreciation. Cost segregation?! Is cost segregation worth it?
You panic.
A cost segregation study is the last thing you want to think about after putting in so much money and energy into your dream business. After all, your immediate priorities include creating a profitable menu, hiring staff and getting the doors open.
Now, you may or may not have a good gist of what cost segregation is, but the real question is, is cost segregation worth it to YOU? How does cost segregation work? As I like to think of it, cost segregation is truly a hidden gem for taxpayers.
With a cost segregation study, taxpayers can see significant tax benefits resulting in upfront cash in their pockets. Without it, your depreciation schedule spans over a 39 year schedule, versus some of your assets depreciating quick over 5, 7, or 15 year lives.
Imagine, using that upfront cash to invest in additional kitchen equipment or better yet, advertising efforts to draw in more customers. See where I am going here?
Cost Segregation Studies
One of the biggest misconceptions of cost segregation is that you can only conduct a study on a newly constructed building. That is actually false. It doesn’t matter if you just bought it or have owned it for years.
A cost segregation study can be especially helpful if the building falls under the following criteria:
- New construction
- Remodeled property
- Acquired buildings
- Additions to existing properties
Below are examples of cost segregation studies completed with our Titan Echo platform:
Apartment Complex
- Original basis: $6,920,000
- Accumulated depreciation without cost segregation: $220,182
- Accumulated depreciation with cost segregation: $521,113
- Additional depreciation deductions: $300,931
- Note: this was a 2017 asset placed in service
Office Building
- Original basis: $3,558,583
- Accumulated depreciation without cost segregation: $153,090
- Accumulated depreciation with cost segregation: $727,426
- Additional depreciation deductions: $574,336
- Note: this was a 2016 asset placed in service
Single Family Residence
- Original basis: $919,746
- Accumulated depreciation without cost segregation: $168,031
- Accumulated depreciation with cost segregation: $428,328
- Additional depreciation deductions: $260,298
- Note: this was a 2007 asset placed in service
Manufacturing
- Original basis: $484,809
- Accumulated depreciation without cost segregation: $52,314
- Accumulated depreciation with cost segregation: $167,712
- Additional depreciation deductions: $115,398
- Note: this was a 2013 asset placed in service
Shopping Center
- Original basis: $751,400
- Accumulated depreciation without cost segregation: $14,450
- Accumulated depreciation with cost segregation: $722,625
- Additional depreciation deductions: $708,175
- Note: this was a 2018 asset placed in service
Specialty Retailer
- Original basis: $26,545,665
- Accumulated depreciation without cost segregation: $28,361
- Accumulated depreciation with cost segregation: $9,262,624
- Additional depreciation deductions: $9,234,263
- Note: this was a 2017 asset placed in service
At the end of the day, is cost segregation worth it? Absolutely.
Ready to get started? It all begins with the Echo Learning Academy, a self-paced training knowledge base that teaches you how to do cost segregation, one step at a time – no experience required. Just for our readers, we’re giving away a sneak peek of what’s inside the Echo Learning Academy. Don’t worry though, signing up for the Echo Learning Academy doesn’t bind you to an actual cost segregation study, it’s just a knowledge base of how to run projects. Access is only $25 per month, cancel anytime!
