Cost Segregation Study Key to Potential Savings
Traditionally, business property has been presumed to have a useful life of 39 years. Owners deduct the cost of a building — minus the land value — over that long period of time.
But what if you could accelerate the deductions — writing off substantially more in the first few years when your out-of- pocket costs to buy are the greatest — so that your net after-tax cash outlay is significantly reduced? That’s precisely what happens when you take advantage of an IRS-recognized practice called cost segregation.
Based on an engineering study conducted by a highly qualified professional, cost segregation breaks down a building’s value — minus 20% for the land — into 5-year, 15-year and 39-year components. The shorter-life components include personal property such as carpeting, cabinets and wall coverings — as well as land improvements such as paving, concrete, fences, interior partitions, electrical, and plumbing. These often represent up to one-third of the building’s value and can be written off very quickly, thanks to their short useful lives PLUS large bonus depreciation write-offs available under the tax code.
Upheld in IRS Reviews and Audits
Cost segregation, backed by detailed engineering studies, has been upheld in numerous IRS reviews and audits over the past ten years or so. This is not some high-risk, only-for- the-most daring scheme. It’s a proven, practical technique your CPA will understand. And it can make the purchase of any commercial property for business or investment purposes — such as the unique car and storage condos at Garage Unlimited of Monterey — much more affordable!