Here at Camuso CPA PLLC, cost segregation is just one of the services that we provide at our firm. For those of you who are unfamiliar with the term, cost segregation is simply the act of identifying the assets of a business, their value, and then classifying those assets in regards to the federal tax code. It can be beneficial for many businesses and investors.
While the full implications of the Tax Cuts and Jobs Act are still unraveling, a number of tax-planning opportunities have presented themselves. Here we will outline how performing cost segregation studies can lead to permanent tax savings.
Overview Of Tax Changes
The 2017 Tax Cuts and Jobs Act (TCJA) has created a number of tax-planning opportunities, some even with permanent tax savings. One of the more exciting opportunities is the permanent tax savings that may be realized by doing cost segregation on existing buildings acquired after Sept. 27, 2017, and placed in service prior to Dec. 31, 2017.
In the past, taxpayers were not allowed to take bonus depreciation on used assets, but this restriction is removed for acquisitions after Sept. 27, 2017. As a result, personal property that was acquired as part of such a building may be eligible for immediate expensing by claiming 100 percent bonus depreciation.
While the greatest opportunity may exist for facilities acquired and placed in service in late 2017, a cost segregation study can still create opportunities to accelerate deductions if a taxpayer has made built, or renovated facilities earlier in 2017 or in prior years. A cost segregation study would create a “catch up” of depreciation deductions on the 2017 tax return for those facilities placed in service in 2016 and earlier — and allow the taxpayer to benefit from the tax rate savings at higher rates.
Bonus depreciation significantly increases the value of completing a cost segregation study. Due to the reduction of corporate tax rates in 2018, taxpayers should review their current real estate holdings to determine if a “look-back” or retroactive cost segregation study should be performed now so that they may claim missed depreciation benefits on their 2017 tax return when taxed at a higher rate.
Regardless of a taxpayer’s structure, the new tax law provides a large benefit for any owner or investor of a used property. To maximize savings, it’s critical to consider a cost segregation study to identify all qualifying assets. Savvy taxpayers will determine their ability to use the new bonus depreciation provisions and will assess when and how to implement them as a part of their overall tax strategy.
Cost segregation studies aren’t something a business can do internally, but rather need a CPA for. And not just any CPA at that. The IRS Cost Segregation Audit Techniques Guide states:
“Preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes. In general, a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background. Experience in cost estimating and allocation, as well as knowledge of the applicable tax law, are other important criteria.”
Here at Camuso CPA, we do have the ability to offer cost segregation studies to our clients. If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.