Cost Segregation Studies Provide Tax Benefits

Cost Segregation Studies are known to provide tax benefits to profitable owners, typically on recently acquired or recently constructed business properties.

Envision a scenario where a property sold at a loss could benefit from Cost Segregation.  IRS provisions allow a “look-back” study on properties acquired in a prior year, with cumulative benefits for tax depreciation deducted in the year of change.  Such deductions reduce the basis of the property and therefore affect the calculation of taxable gain or loss upon sale.

When a property is sold at a gain, depreciation will typically be recaptured which can effectively negate the benefits of the Cost Segregation Study.  However, if sold at a loss, depreciation is not recaptured.  Potentially a limited capital loss on the property can be converted to an immediate depreciation tax deduction.  This scenario works, but the study must be completed and filed with the tax return for the year of sale.

A quick review of the property purchase and sale history, as well as the taxpayer’s overall tax profile, will provide enough information to decide if a study is worthwhile.

For more information about how you can benefit from Cost Segregation Studies, please call Ells CPAS at 714.569.1000 or use our contact form on the right of the page.