Cost segregation is a tax benefit that is not well known. Cost segregation is a strategy used by property owners to maximize the amount of depreciation taken each year.
This kind of depreciation expense is one of the major tax benefits of multifamily ownership because it helps to reduce the property’s tax liability without impacting the cash available for distribution. Commercial property owners, such as a multifamily property, have a strong incentive to take as much depreciation as they can each year. One of the ways this can be done is through a cost seg study (with no upfront fees).
Without cost segregation, tax rules allow multifamily assets to be depreciated over 27.5 years using a straight-line schedule. Cost segregation involves reviewing every aspect of a property and segregating its components into different buckets for which depreciation can be accelerated.
By dividing a property into its components and depreciating them over a shorter time period, depreciation expense is maximized, and the resulting tax liability can be significantly reduced. Over a 10-year investment holding period, the tax savings from using cost segregation can be significant.
Depreciation is a noncash expense, meaning that it does not represent money that the property owner paid to another party. It is an accounting concept that does not impact the property’s cash available for distribution.
The benefits include:
*Increased Cash Flow
*Minimizes Taxes
*Catch Up Benefit (no amending returns)
*Free Up Money For Investments
Now you can see your benefits in seconds.
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