One of the most overlooked things in the cost of a business establishment is how much of it can be reimbursed in the form of real property assets. Properly calculated, separating your personal assets from the real property assets of your site can be filed under your tax depreciation, giving you more capital and reimbursing some of the construction costs.
But how exactly do you go about creating a cost segregation study for your site? Here are a few pointers.
Understanding The Basics
First, your site is eligible for a cost segregation study if:
- It was purchased, remodeled, expanded, renovated, or constructed after 1987.
- Undergone a formal engineering-based study if the total value of the property is above $750k.
- It’s generally advised to conduct a cost segregation study for newer buildings, but older buildings can also give noticeable returns via “catch-up” depreciation. The changes to the Tax Cuts and Jobs Act of 2017 vastly improved the returns on cost segregation, if your property falls under the specific categories.
Specifically, taxpayers can capture retroactive savings on the property that they registered since 1987. These retroactive savings can give considerable cash flow for the current fiscal year, and it can be done on newly acquired or older properties, regardless of the method of acquisition.
Who Should Do It?
While cost segregation specialists exist, there should be multiple people in your study. Aside from structural engineers, designers, architects, and other building staff, it’s important to have legal assistance on hand. The law in each state applies differently depending on the kind of building that you have, and a comprehensive understanding of these laws is critical to filing the correct study for review.
In addition, accountancy specialists may also be hired to properly collate the costs of the building (including “soft costs” that may have been missed in the building’s evaluation) for a clearer review. While there are guidelines on the proper format and filing of cost segregation studies, a well-balanced numerical report may speed up the process of your cash reimbursement.
When Should I Do It?
The best time to conduct a cost segregation study would be soon after the building is acquired or remodeled. For example, we Tri-Merit would break down this timing depending on whether or not the building is still under construction or already done: in both cases, the best time to conduct a study would be before the infrastructure is locked in.
This way, any further costs to the building (such as land improvements) can be properly sorted into their own cost heading after the bulk of the accounting is done. Properly sorting land improvements is also crucial, as it can directly impact the acceleration of your depreciation deductions.
Whether it’s a cost segregation study or other forms of building taxation, work with a reliable firm. Tri-Merit, for example, offers specialty tax services that can provide all the legal assistance you may require with your building’s taxes. The firm has dedicated and knowledgeable staff to help you increase your cash returns while reducing the strain on your in-house crew on your building’s paperwork.