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Posted by: Charles P Myrick CPA Posted on: Dec 30 2014

Small Business Owners: Tax Savings From Cost Segregation

Are you a small business owner or entrepreneur who owns commercial real estate? You may be able to reduce your current income tax bill by using cost segregation. Your potential tax savings increases with the cost of your property. 

Eligibility for Tax Deductions

Any building constructed, purchased or remodeled since 1987 may be eligible for cost segregation  tax deductions. Retroactive deductions are available for older buildings without the need to file amended tax returns.

The Cost Segregation Specialist

To pass an IRS audit for these deductions, you will want to use a cost-segregation specialist. This will usually be a construction engineer who can perform a detailed engineering study of all the building components (walls, ceilings, floors, plumbing, electric, telecommunications, heating and cooling systems, etc.) and assign the appropriate value to each.

A Cost Segregation Study

A properly conducted cost segregation study can provide a property owner with cash today that he or she would not otherwise get for several years. Those elements that qualify for a writeoff of five, seven, or fifteen years will provide the property owner with greater depreciation deductions and hence lower taxes in the early years. The downside? The cost of the study versus the accelerated cash flow and possible penalties from the IRS for those who use cost segregation too aggressively.

What to look for in a  proper cost segregation study:

  • Credentials of the cost segregation specialist
  • Detailed description of the methodology.
  • Complete and correct documentation.
  • Comprehensive list of all property that qualifies for shorter write-off periods.

An initial consultation with a cost segregation specialist can help you determine if your property is a candidate for a full-blown study.

Contact Charles P Myrick CPA, Washington DC tax preparation firm, for a full range of tax planning and preparation services. Our expertise and experience allow us to optimize financial opportunities to be found in existing as well as recently altered tax laws.  

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