What is Cost Segregation?
Cost segregation is a tax strategy used by investors in commercial real estate that involves depreciating their properties at an accelerated pace. Then, the depreciation may be deducted from a person’s overall income, meaning they will owe less in taxes and end up with more cash in hand.
Depreciation is something that any real estate investor can claim to help offset the cost of owning, maintaining, and operating a property. There are specific rules regarding the rate at which you can claim depreciation depending on the type of investment property. Cost segregation simply speeds up the process and allows you to write off the depreciation more quickly, keeping more money in your pocket up front.
How Does It Work?
Cost segregation is not necessarily a simple process. It requires hiring a financial expert to conduct a cost segregation study, which takes about a month and costs anywhere from $5,000 to $15,000.
The study includes an analysis of the various components of your investment property (exterior elements, plumbing, electrical, permanent fixtures, and other building components). The firm you hire will also want to collect a recent appraisal (or other documentation showing the building’s value) and will analyze the operating expenses associated with the investment.
Once all necessary documentation is gathered and thoroughly examined, the financial firm will provide a report detailing the options and strategies available using cost segregation based on your specific property.
Is Cost Segregation Right for You?
To determine whether cost segregation is right for you, consider discussing with an experienced commercial real estate broker, other property owners, and a financial firm to help you walk through the process. Be sure not to dismiss the idea, as the best tax strategies can save you thousands and keep your assets liquid so you can continue investing elsewhere.
Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.
We give out $250 gift cards for referrals that become our real estate clients.
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