The price segregation work needed to classify land as positively as possible does include a cost -- just like any business decision, that price has to be weighed against the advantages. We invite those interested in considering the internet advantage after accounting for cost segregation charges to contact us for a complimentary (conservative) analysis of your tax advantages along with a quote to perform the job so that you may make an informed decision.
Consequently, if a business, or business owner, in the 35% tax bracket can increase depreciation deductions by, say, $10,000, that has the effect of decreasing income by $10,000...the end-game effect is that $3,500 less will go to the IRS (and $3,500 more would go to a business' cash flow).
Let us compare; starting with the 39-year S/L depreciation on a1M building example, we'd be able to deduct $25,641 each year.
This translates into paying $3,860 less in yearly taxes over the next five decades, to get a gap in paying $19,300 less in taxes.
What is the tax consequences of classifying the whole property as 39-year S/L versus the attempt to segregate and reclassify property parts into recovery intervals between 5 and 15 years?
Cost segregation has the effect of increasing depreciation deductions which subsequently reduces taxable income, and consequently minimizes taxes paid and maximizes cash flow. This report investigates the company case around cost segregation by way of a very simple example.
It isn't unusual to have personal home with 5 to 7 years worth of usable life categorized as 39-year direct line (S/L) depreciation items; building elements such as affixed closets, un-affixed floor coverings, and electric parts servicing equipment. Further, resources together with 15 years worth of usable lifetime can be classified as 39-year S/L depreciation items as well; such as parking lots, storm drains, sidewalks, and storm drains.
Suppose 15% of this example $1M (not including land cost) specialized office construction (medical, lab, research, etc.) was classified as property using a last-minute recovery interval and 10% was categorized as 15-year property. So, $150,000 of 5-year land would permit for $30,000 per year in depreciation deductions as well as the 15-year property would allow for $6,670 in annual depreciation deductions.
And, please note, the advantages of cost segregation could be accomplished (both retroactively and moving forward) even on properties purchased several or more years ago.
In more detail, cost segregation increases building depreciation deductions when assets that are depreciating depending upon a, say, 39-year usable lifestyle, may be reclassified (where allowable) as assets that depreciate depending upon a, state, five-year recovery period.
This financial difference after five years between both building depreciation paths allows for a company to have money available to help replace those 5-year life building elements, particularly if the cash difference was spent for a modest 4% yearly return to keep up with, or ahead of inflation.