6 Key Factors to Consider When Evaluating a Property for Cost Segregation
As the real estate market continues to rise, property owners are seeing the need to become more educated on ways to reduce their costs. Knowing that real estate is one of the only investments in the United States that can be depreciated (cost recovery), it comes as a no-brainer that property investors are utilizing the benefits of the tax code via cost segregation in order to maximize their cost recovery!
The IRS allows the separation of building components so that items such as land improvements and personal property can be separately depreciated over the shorter recover periods. A property’s structure is generally subject to a 39-year recovery period (non-residential) and 27.5-year for residential, while land improvements qualify for a 15-year recovery period and personal property qualifies for a 5-year recovery period. As a property investor, let’s say you installed new flooring throughout your building. Every year, you can write that flooring off on your taxes until the end of its useful life. That period of time that the asset depreciates is considered the recovery period and the shorter the recovery period, the greater the reduction […]