What is Cost Segregation? - F.A.Q.
Q. What is cost segregation?
Cost segregation is a tax strategy that involves identifying and reclassifying specific components of a property for accelerated depreciation, resulting in increased tax benefits and cash flow.Q. Who can benefit from cost segregation?
Cost segregation is beneficial for property owners across various industries, especially those with commercial, industrial, or specialized properties.Q. How does cost segregation work?
A detailed cost segregation study is conducted to identify components of a property that can be depreciated on an accelerated schedule. These components are then reclassified to optimize tax benefits.Q. Is cost segregation only applicable to new construction?
No, cost segregation can be applied to both new construction and existing properties. Even properties owned for several years can benefit through a process called "look-back" studies. No amending a prior year's tax filings necessary.Q. What types of properties qualify for cost segregation?
Residential rental properties, auto dealerships, hotels, and various other properties with diverse building components are prime candidates for cost segregation.Q. How long does the cost segregation process take?
The timeline varies depending on the size and complexity of the property. Q. Can cost segregation be applied to residential properties?
While the focus is often on commercial properties, certain residential rental properties can benefit from cost segregation studies.Q. Will cost segregation trigger an IRS audit?
Properly conducted cost segregation studies are in compliance with tax codes and should not trigger an audit. Reputable firms ensure adherence to regulations.Q. How much can I save with cost segregation?
The savings vary based on factors like property type, build out, size, and types of buildings and depreciation amounts. However, clients often see significant increases in cash flow and tax benefits when performing a cost segregation study.Q. Is cost segregation a one-time benefit?
While the initial study provides immediate benefits, cost segregation can be revisited after renovations, improvements, or disposals ensuring ongoing tax optimization as the property evolves.
