The Basics of a Cost Segregation Study

The tax implications of investing directly into real estate have long been considered favorable. This became even more true with the passage of the Tax Cuts & Jobs Act (TCJA) in late 2017. However, there are multiple different topics that could fall within this category.

This week we decided to focus on the potential tax benefits received from accelerated depreciation.

In a webinar hosted on March 12th, 2020, John Hanning from KBKG joined us to discuss the Basics of a Cost Segregation Study and the benefits of accelerated depreciation.

In this webinar we cover:

1. What a Cost Segregation Study is
2. The goals of a Cost Segregation
3. The types of property that are eligible
4. The potential NPV benefits of Accelerated Depreciation
5. Tax Reform Updates surrounding Depreciation

Some highlights from the webinar:

What is a Cost Segregation?

A cost segregation is the process of identifying all property-related costs that can be depreciated faster. This could be from acquired property, new construction, or even remodels or build-outs.

The Benefits of a Cost Segregation

1) Accelerated Depreciation

With a cost segregation study you have the ability to depreciate property over shorter lives. For instance, shifting the cost associated with purchasing a commercial property from 39-year property into 5, 7, or 15 year tax life. This increases tax deductions early for increased cash flow.

2) Establishing Depreciable Tax Value

There are a lot of items associated with a piece of real estate that have a high likelihood of needing replacement in the future. A cost segregation study established a value for each individual item to assist with disposition later down the road.