Owners of residential rental property and other types of buildings purchased or constructed after 1986 have the opportunity to reap the benefits of an IRS approved tax break. This tax break, referred to as cost segregation can provide significant and immediate tax savings.
Cost segregation guidelines provided by the IRS allow a portion of a building’s cost to be depreciated in a shorter period of time than the usual 27.5 to 39 years used for the building itself. Separate components that are not related to the building’s general operation and maintenance could be depreciated over five to seven years instead. Additionally, the depreciation deduction for these components allows costs to be recovered twice as fast as the traditional straight-line method.
Although not all-inclusive, a few examples of building components that qualify for accelerated depreciation include many functional and ornamental features like carpeting, counters, cabinets, millwork, and kitchen equipment. Similarly, some land improvements located outside of the building such as landscaping, sidewalks, parking lots, signs, and lighting can be depreciated over a 15 year period, helping to recover costs faster. In total, up to 60 percent of a building’s cost could potentially be deducted over a shorter period, depending on the building type.
If you think cost segregation analysis could benefit you or your business, we would love to hear from you. Please contact our office and let our experts determine how these beneficial tax breaks could work for you.