Cost Segregation is a tax planning strategy used by savvy commercial real estate investors that accelerates the depreciation of certain components of their properties. In return, this can reduce current tax liability resulting in upfront cash flow.

Think of it this way, the benefits of cost segregation are comparable to borrowing money from the government – interest-free. Allowing you to do whatever you want with the cash – use it to make improvements on the building, or better yet – use it for the down payment on your next acquisition.

Your building has value – and over time that value depreciates due to normal use and deterioration. In years past – the IRS considered a building as a single asset which was depreciated straight-line, over 39 years for non-residential commercial properties, or 27.5 years for commercial residential properties.

What does this really mean? Let’s say you own a non-residential commercial building. During the first 39 years of ownership, you get a tax deduction of 1/39th of the building’s value, each year.

Although these depreciation expenses are helpful at tax time, there’s a smarter way to do it.

We all know well that most components within a building don’t last 39 years. Over time, the law has evolved to align with this reality. Today, pieces of the building like carpeting, specialty lighting, certain plumbing fixtures, and landscaping can be “segregated” from the building.

With Cost Segregation, an IRS approved technique, these segregated assets can be expensed faster, on a 5, 7 or 15-year schedule, based on their individual depreciable lives – as opposed to being part of the building’s 39-year straight-line depreciation schedule.

What does this mean for you? Cost Segregation is a great strategy for helping you grow your net worth faster by significantly reducing your current tax liability, using the upfront cash for additional investing.

Ready to magnify and intensify your wealth? Give us a call today

LISTEN: Defining Cost Segregation

 

 

 

The 3 Components of Cost Segregation

On-Site Verification

Field Work, also known as “On-Site Verification”, or “OSV”, is the first step in performing Cost Segregation. If you read the audit guidance from the IRS on Cost Segregation, someone’s got to go to the field.

 

Echo makes it very easy to verify the all assets exist.

Construction Cost Estimating

The second step is Construction Cost Estimating (CCE). This is where Echo reviews the supporting documents you gather – and extract any pertinent project data.

 

Echo then does quantity takeoffs from the drawings (if you have any) – and your pictures from the field.

Legal Analysis

The third piece is Legal Analysis. Once Echo has the costs for all the items, it needs to evaluate each item under the current Cost Seg body of law.

 

This process without a doubt is vital and quite complicated. Although it has evolved, there is conflict in the law, it’s a little dicey.

TITAN ECHO: D-I-Y COST SEG