If you want residential or commercial real estate, you may benefit from a cost segregation study. A cost segregation study looks at the property and breaks it down into more components than just saying you bought a building. And how this affects you is through taxes and depreciation.
Depreciation on residential property, in general, is 27 and a half years, and commercial properties, 39 years. However, if you were to break out what you were buying, you’re actually buying that building as well as some of the fixtures, things like lighting fixtures, carpeting, sidewalks, those depreciate faster if they were individually broken out than just the building.
So carpet, for example, would depreciate over five years while sidewalks might be over 15 years. So speeding up depreciation can be the benefit of cost segregation. Through a cost segregation study, you will have a breakout of all of the different components of the building that can be depreciated faster than just the building. That will reduce your taxable income in any given year and help you pay less in taxes.
However, you must remember, this is purely a timing difference. It is not an overall benefit to taxes, just a fear of timing difference. So you want to make sure that it’s well worth your while, how segregation studies for commercial properties can run into the tens of thousands of dollars, depending on how big the property is. You can also do smaller properties, residential rental properties, for example, probably around $1,000 to $2,000 you can do a cost segregation study. So really depends on what you’ve purchased.
The cost segregation studies can also be very beneficial if you have purchased a furnished location, especially on commercial property. Because those furnishings are depreciated much faster than the building as a whole. Now, this really is not a do-it-yourself project you’ll need to employ a consultant to help you with the real estate, study for that cost segregation.
There are a few ways to do small ones in a do-it-yourself fashion, but you must be very careful to make sure that you have something that you can support. They’ve asked about it through the IRS. So if you’re interested in looking at the benefits of a cost segregation study for real estate that you may own, I’d be happy to help. Let me know. Thank you.
I’m Donna Bordeaux from Calculated Moves. Please follow us on Facebook, Instagram, and LinkedIn. Make sure you check out our blogs and our websites from the link below. Subscribe to our YouTube channel and hit the bell to be notified when we post. To contact me, email me at donna@calculatedmoves.com.
Donna Bordeaux, CPA with Calculated Moves
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