- Standard depreciation is 27.5 years for commercial real estate
- Segregated expenses can depreciate faster for maximum tax benefits
- Use it Now or Use it Later- Carry your tax credit forward for twenty years
If you’re building a commercial building and making a significant investment, you want to gain all the tax advantages possible to help your bottom line. One way to do this is through a cost segregation study. A cost segregation study looks at all the components of a new building – including the building structure and interior and exterior components. Many of those components depreciate faster than the standard 27.5-year deduction for commercial real estate.
Depreciation allows companies to spread the cost of a tangible asset over several years. The IRS sets the depreciation time of these items from 5 to 27.5 years. However, on a commercial property, the entirety of the cost depreciates over 27.5 years unless you conduct a cost segregation study.
What Is Cost Segregation?
A cost segregation study looks at every expense from your commercial building, and it categorizes them by the depreciation time.
For example, personal items like computers, furniture, and more, are depreciated over 5 or 7 years. Landscaping depreciates over 15 years.
Cost segregation splits all of the expenses of a commercial building and allows businesses to gain depreciation in shorter time spans.
Can my company benefit from cost segregation?
Cost segregation is beneficial for companies investing a significant amount of money on commercial real estate and equipment.
A cost segregation study is likely beneficial to your company if you’ve spent at least $1 million on a new facility.
A cost segregation study is beneficial for companies in these industries:
- Manufacturing
- Construction
- Medical
- Real Estate
- Food & Bev
- Agriculture
- Professional Services
- E-commerce
- Retail
How to find the right cost segregation tax consultant
If you want to use cost segregation, finding the right tax consultant is important.
Cost segregation is a detail-heavy process that analyzes all of your building’s expenses and categorizes them based on IRS depreciation standards.
A cost segregation consultant needs to understand the ins and outs of depreciation, as well as have a meticulous approach to categorizing your expenses.
A cost segregation study is beneficial for companies who spent a million dollars or more on a new facility. Cost segregation helps companies categorize expenses from a commercial building so that they get the most tax benefit for depreciation.
The Internal Revenue Service sets the depreciation time of assets. Some assets, like computers, office furniture, and more, depreciate between five and nine years. Other assets may depreciate over 15 years. Commercial real estate depreciates at 27.5 years. A cost-segregation study can help companies categorize expenses based on depreciation time for greater tax benefits.
