Most business owners will be surprised to learn from a CPA in Northwest Houston that a cost segregation study has the potential to offer them riveting tax savings. Some of the most attractive benefits of the process include an increase in cash flow by deducting tax depreciation, making room for an unconstrained third-party analysis that will stand up to the IRS review, and recognizing some of the major components of company property that will help during replacement and renovation.

What Is a Cost Segregation Study?

In the simplest term, a tax segregation study is a tool that offers strategic tax planning which helps a company or an individual who has a property to their name or any real estate to improve the cash flow through the acceleration of the deduction of the depreciation cost and to defer state income and federal taxes.

The purchase of an office building includes not only the structure of the building but also its interior and exterior constituents. A percentage of these constitutes, ranging from 20% to 40%, comes into tax categories that can be written off faster than the building structure. 

The study proves beneficial in dissecting the initial purchase price or the total construction cost that would be depreciated after several years. The number of years might vary in the case of different interior or exterior components.

When Is It Logical To Opt For A Cost Segregation Study?

As the cost segregation assesses the inspections, records, and all other relevant cost detail of the property at the time of construction, it would be logical to consider doing it during the year of construction itself.

However, it can be done anytime after purchasing, constructing, or renovating an office building or any other property. Opting for a cost segregation study in year one would help the property holder with the maximum tax deduction on new constructions.

Tax Benefits Of A Cost Segregation Study:

With the help of a cost segregation study, the leftover tax basis can be written off if some construction constituents need to be replaced. The study also helps reduce local realty transfer tax imposed by the government on the current market valuation of a property. As the study lowers the overall valuation of the building, it reduces the amount of transfer tax that needs to be paid by the owner of the real estate.