Cost Segregation Studies can be utilized in a variety of tax planning schemes. A few of cases where a Cost Segregation Study may be appropriate are:
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Tenant Improvements |
Landlords providing allowances for tenant improvements will want to allocate those allowances to shorter lived assets whereas the tenant will want the allowances allocated to the structural elements of the building reserving out of pocket costs to be applied to the short-lived assets. |
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Like-Kind Exchanges |
A taxpayer may create additional opportunities to take cash out of an exchanged property by either conducting a Look-back study on the old property or by performing a cost segregation study on the acquired property. |
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Passive Losses |
A taxpayer may be able to gain immediate tax savings by using idle funds to pay down a leveraged real estate loan in conjunction with a cost segregation study. |
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Estate Tax Planning |
In community property states, a family holding commercial property can accelerate the depreciation of short lived assets up to three times by having a cost segregation study performed while both spouses are alive; after the passing of the first spouse and after the passing of the remaining spouse. The effect is to create “free money” by accelerating the depreciation on the same property three times. |
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Net Operating Losses |
For IRS purposes, taxpayers that are deemed to be “real estate professionals” can create losses to offset other types of income through the use of a cost segregation study. If a net operating loss is created, the loss can be carried back to prior years. |
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Section 179/Bonus Depreciation |
Newly constructed assets with lives of less than twenty years, placed into service within an allowable time frame, will qualify for bonus depreciation. A cost segregation study may create significant bonus deductions. |