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What if you could take depreciation faster than 27.5 or 39 years on your real estate investments? It will surely help your bottom line, right?
A cost segregation study can significantly improve your chances of front-loading deprecation deductions by breaking your building up into different categories.
Land isn’t depreciable, so we’ll eliminate that from the equation right away. But, then you have equipment, furniture and qualified improvements which fall into 5,7 and 15-year categories. A cost segregation study can expedite your depreciation so you can claim 100% bonus depreciation on 5,7 and 15-year property in the year of purchase.
Let’s be clear that you won’t walk away with more money in your pocket. You’ll get the same depreciation deductions, but you’ll have the money in your pocket now rather than down the road.
What does this mean for you?
With a lower tax liability, you have more cash that will enable you to invest more rather than paying your money to Uncle Sam.
Since the Tax Cuts and Jobs Act has increased bonus depreciation to 100%, up from 50%, the cost segregation study has become a lot more attractive and common among real estate investors. However, we must see if the passive activity loss rules affect your bottom line. In a recent case study, the owner of a $400,000 property that was bought this year, was able to receive $50,000 in deductions now versus waiting for 27.5 years. This put $20,000 more in the owner’s pocket because of his high tax bracket at 40%.
Understanding cost segregation can be confusing, if you’d like to see if and how you could benefit, call us today at 714-383-2307 and let’s get started.