Accounting can be very confusing especially if you’re a layman. The terminology and calculations used can go over our heads if we don’t have a basic understanding of what it is about. Take depreciation, for instance. As per most people’s understanding, it relates to resources being used up or assets going to waste. The good news, however, is that when it comes to accounting, it has little to do with either. In accounting terms, it merely means spreading the cost of an asset or item with a long life over a period of time.
It is important to undertake cost segregation whereby personal assets are separated from personal property assets. This decreases the depreciation period for tax purposes so that obligation of paying tax from current income is reduced. The burden of paying tax is, thus, highly reduced.
Under United States law, real property that is eligible for cost segregation covers structures and buildings that have been erected or remodeled since the year 1987. A cost segregation specialist will be able to assess and calculate how much of your real property consists of personal assets.
Depreciation is hugely beneficial especially to those owning rental properties like apartments. Since the cost of a residential rental property is recovered over a period of 27 and a half years, it can be a long wait. But depreciation allows you to recover on your taxes the cost of your property every year.
Some of the advantages of cost segregation is that it accelerates the depreciation period while increasing tax benefits and providing easier write-offs of components of buildings that need to be replaced. But the downside lies in the fact that cost segregation services can be pretty expensive, amounting to around $20,000. This will depend on the location, whether the building is non-residential or residential and the age of the property. Not to mention, the study could take up to a month to complete.
So, if you want to make use of cost segregation services, it is always better to consult your tax advisor who can caution you about wrong information being filed so that you aren’t penalized by the IRS. Use the services of a well-known and fair cost segregation specialist to avoid overstatements.
Interested to know more about cost segregation or cost segregation services?
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