In the world of commercial real estate, any opportunity to save money can be retooled back into properties to improve amenities, elevate tenant experience, or even invest in new ventures. Cost segregation is a tax-saving method that is not taken advantage of as often as it should. In partnership with Scarpello Consulting, National Property Inspections is now offering cost segregation services to preferred commercial property clients.
Cost segregation can seem like a complex topic to those unfamiliar with the concept, but it is more straightforward than the name might suggest. To discover whether you may qualify for cost segregation, let’s take the time to discuss what it is and how it works.
What Is Cost Segregation?
Cost segregation is a tax savings tool used to reduce the income tax liabilities of property owners by accelerating depreciation deductions. A cost segregation study is conducted to evaluate a qualifying property and track its components on a shortened scale, usually after 5, 7, or 15 years rather than the traditional 27.5 or 39 year period. This allows owners to write-off components much earlier than usual, saving considerably on property taxes.
While there is an initial cost with a cost segregation study, the tax savings property owners will receive over the long term makes the strategy worthwhile.
How Does Cost Segregation Work?
With NPI’s partnership, Scarpello Consulting will perform a study to identify assets in a property that qualify for shorter depreciation periods. The team may review things like property records, property inspections, blueprints, and potentially conduct new inspections, working with expert tax advisors and engineers. The study that they conduct provides the proof needed for reclassification, often leading to considerable first year tax savings.
How Do You Qualify For Cost Segregation?
To determine whether you qualify for a cost segregation study, there are a few categories that should first be met. A building must have a minimum purchase price of $750,000 for eligibility, and the property needs to have been purchased, constructed, or renovated since 1987.
In addition, you must have a taxable income and plan on keeping the property for the next few years to benefit from tax savings. As a commercial property investor or owner, odds are great that your properties will qualify for a cost segregation study. Anyone who has taken the time to review cost segregation will know that the return on investment for a cost segregation study is impressive. Any investor or property owner interested in taking advantage of this often missed tax-saving opportunity should reach out to Scarpello Consulting for an estimate to see whether this strategy is best for their situation.
