The IRS Position On Cost Segregation

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• The IRS Position
• On Cost Segregation

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T a x R e d u c t i o n E x p e r t s
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Background
In order to calculate depreciation for Federal
income tax purposes, taxpayers must use the
correct method and proper recovery period for
each asset or property owned. Property, whether
acquired or constructed, often consists of
numerous asset types with different recovery
periods. Thus, property is typically separated
into individual components or asset groups
having the same recovery periods and
placed-in-service dates to properly compute
depreciation.
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Here Is What The IRS Says About Cost Segregation
To calculate depreciation for Federal income tax
purposes, taxpayers must use the correct method
and proper recovery period for each asset The
primary means of determining the proper recovery
period is by conducting a cost segregation
study. The purpose of a cost segregation study
is to identify the value of assets with varying
lives, typically 5, 7, 15, 30 and 40 for real
estate.
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The 2017 Tax Cuts and Jobs Act
The 2017 TCJA magnified the benefits by allowing
ALL 5-, 7-, and 15-year life property to be
depreciated in year one. This made it typical
for 20 to 50 of the total cost of the real
estate to be depreciated in year one.
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Here Is An Example Before and After 2017 Jobs Act
Lets consider a standard commercial office
building with a depreciable basis of 4,000,000
purchased in September of 2019. The investor is
in the 37 tax bracket. Before the Tax Cuts and
Jobs Act the depreciation resulting from a cost
segregation study would have looked like
this Without Cost Segregation (Straight-Line)
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Without Cost Segregation (Straight-Line)
Use of a cost segregation study would have
significantly enhanced his tax and cash flow
position as follows
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With Cost Segregation (Including TCJA)
After the passage of the Tax Cuts and Jobs Act of
2017, and with the utilization of cost
segregation, take a look at the difference
Over 1.1 million in additional depreciation in
year one!!
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Eliminate Federal State Income Taxes With Cost
Segregation!
Determine Your First Year Federal Income Tax
Savings!