Cost Segregation Study
Detail studies that maximize depreciation
What is Cost Segregation?
Cost Segregation is a highly advantageous and widely embraced tax tactic utilized by owners of commercial and residential rental properties to expedite depreciation deductions, defer taxes, and enhance cash flow.
When you purchase real estate, you need to split the purchase price between the building and the land. A cost segregation analysis helps you determine the proper allocation of your investment.
Oftentimes, these studies accelerate depreciation schedules for your assets, particularly with real estate, and produce significant tax savings.
Why is it such a great tax strategy?
The key to taking advantage of cost segregation is to first order a cost segregation study. These studies can show you how to maximize the tax deductions from your investment property.
A cost-segregation analysis allows you to precisely determine what percentage of your purchase went towards the cost of the land versus buildings.
Basically, most real estate transactions involve the purchase of both buildings and land. However, you can’t depreciate land, so you need to calculate how much you paid for the buildings and other assets, then calculate depreciation from there.
How Can Cost-Seg Help Airbnb Hosts Save Money?
Airbnb’s have higher rental income than long-term rentals. So, hosts often incur taxable income from their properties, which is less common on a longer term rental.
Consequently, it’s even more important to consider cost segregation on Airbnb. Short-term rental operators should make sure they’re maximizing their depreciation deduction.
What are the Benefits of doing a Cost Segregation Study with SET?
Many business owners are often surprised by the significant tax savings uncovered through a cost segregation study. Some of the key benefits of choosing SET to do it include:
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- Immediate Cash Flow Boost: Accelerated depreciation tax deductions lead to an immediate increase in cash flow.
- Identification of Property Components: Clear identification of major property components and leasehold improvements allows for potential write-offs upon replacement or renovation.
- Annual Tax Reduction: Higher depreciation claims in a tax year result in reduced income taxes on your investment properties annually. this text
- Increased Cash Availability: With more cash on hand after tax payments, you have the flexibility to further expand your property portfolio through additional real estate investments.
Who Will Benefit From A Cost Segregation Study?
While a cost segregation study is particularly advantageous for those who have acquired or constructed investment real estate within the past 15 years, it's not a universal solution for all investors. However, it can be a valuable tool when investors seek additional liquidity for further investments.
Consider this scenario: You currently own a single-family home that you rent out. Now, you're eyeing the acquisition of an office building to expand your real estate portfolio. Through cost segregation, you can accelerate the depreciation of your single-family property, thereby lowering the taxes payable on it in subsequent years. This tax relief frees up capital that you can allocate towards purchasing the office property.
How Long Does a Cost Segregation Study Take?
The duration of the study can vary based on factors such as the property type, size, and the availability of necessary documentation. However, as a rough estimate, you can expect the process to last anywhere from 30 to 60 days.
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