Tax Benefits of Cost Segregation
In addition to providing tax relief, cost segregation can benefit businesses in a number of ways, including:
- Maximizing tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased during the early stages of a property’s life. This, in turn, releases cash for investment opportunities or current operating needs.
- Creating an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. A properly- documented cost segregation helps resolve IRS inquiries at the earliest stages.
- Playing Catch-Up: Retroactivity. Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. Previous rules, which provided a four-year catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the cost segregation is completed. This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive cost segregation analyses on older properties to increase cash flow in the current year.
- Revealing opportunities to reduce real estate tax liabilities and identify certain sales and use tax savings opportunities.
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