{"id":51373,"date":"2024-02-20T08:00:00","date_gmt":"2024-02-20T14:00:00","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=51373"},"modified":"2024-02-16T09:54:16","modified_gmt":"2024-02-16T15:54:16","slug":"cost-segregation-and-benefits-to-your-clients","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/cost-segregation-and-benefits-to-your-clients\/","title":{"rendered":"Cost segregation and benefits to your clients"},"content":{"rendered":"\n<p>The acquisition and renovation of commercial and residential <a href=\"https:\/\/taxprocenter.proconnect.intuit.com\/tax-law-and-news\/tax-tips-for-real-estate-professionals-who-are-self-employed\/\">real estate<\/a> is often the largest expense for the average client. In this context, cost segregation is an often-overlooked path to financial relief that clients can benefit immensely from. Through maximizing deductions, a client can minimize their federal\/state tax burden, freeing their money for reinvestment elsewhere.<\/p>\n\n\n\n<p class=\"has-x-large-font-size\"><strong>Who can benefit<\/strong><\/p>\n\n\n\n<p>Any client who has purchased or built investment real estate in the past 15 years can benefit from a cost segregation study. Long-term investors who want access to more funds will benefit the most, because benefits increase the longer a property is held\u2014meaning more tax years to deduct.<\/p>\n\n\n\n<p>Cost segregation requires a team of engineering and financial experts. While studies are not free; they usually cost $5,000 to $15,000 each, so savings over time usually outstrips the one-time fee.<\/p>\n\n\n\n<p>Tax preparers also can benefit, as most cost segregation companies will offer a referral fee. Cost segregation companies rely on tax preparers as their &#8220;trusted advisor&#8221; and see the value in providing a <a href=\"https:\/\/taxprocenter.proconnect.intuit.com\/practice-management\/surprising-tips-to-ignite-client-referrals\/\">referral<\/a> fee for introductions and closed deals.<\/p>\n\n\n\n<p class=\"has-x-large-font-size\"><strong>What is it?<\/strong><\/p>\n\n\n\n<p>Cost segregation differentiates between the short- and long-term aspects of a given property. For example, residential rental and commercial properties depreciate over the course of several decades: 27.5 years and 39 years, respectively. This depreciation can be deducted against the owner&#8217;s taxable income.<\/p>\n\n\n\n<p>However, there are numerous elements such as the sidewalk, fencing, carpet, or plumbing that depreciate much faster over 5-15 years. These assets can qualify for bonus depreciation, which can provide some immediate expense in the year the assets are placed in service. Without cost segregation, these shorter-lived elements are written off with the same, longer schedule of the property as a whole. But a cost segregation study allows a client to identify the parts of a property that depreciate faster, allowing for larger deductions on parts with faster depreciation.<\/p>\n\n\n\n<p>A cost segregation study begins with a feasibility analysis; the team analyzes and categorizes parts of the property, including wiring, lights, flooring, renovations, and plumbing, evaluating if it is a good candidate. This is usually accompanied with a formal appraisal, as well as an in-\u00adperson examination of closing documents signed on purchase, inspection records, property records, and blueprints. Any operating costs that can be depreciated over 5-15 years are then identified and outlined in a formal report, and provided to the client and the tax advisor at closing.<\/p>\n\n\n\n<p class=\"has-x-large-font-size\"><strong>When should a study be conducted?<\/strong><\/p>\n\n\n\n<p>A cost segregation study can be conducted any time after your client buys, builds, or remodels a property. However, the best time is the same year of purchase, construction, and\/or remodeling, because the highest savings occur in years when the most money is spent. However, a look-back study can also be conducted, catching up the difference between the originally claimed depreciation and what could have claimed if the study were performed earlier. These deductions occur in a single year, and the taxpayer will need to file <a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/f3115.pdf\" target=\"_blank\">Form 3115<\/a>, <em>Application for Change in Accounting Method<\/em>, to catch up the depreciation in a current year.<\/p>\n\n\n\n<p class=\"has-x-large-font-size\"><strong>What to look for in a cost segregation company<\/strong><\/p>\n\n\n\n<p>While rare, it&#8217;s important to find a cost segregation company that will offer audit support in case the IRS wants to delve deeper. In addition, the cost segregation company should clearly provide a methodology for conducting their study and also be a reputable company. There are many &#8220;low cost&#8221; cost segregation companies that do not do their due diligence in substantiating client&#8217;s depreciation deduction. At minimum, the cost segregation companies should be able to do a physical inspection and take pictures of the property so there is proper documentation for the report in case of an audit.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>cost segregation is an often-overlooked path to financial relief that clients can benefit immensely from. Through maximizing deductions, a client can minimize their federal\/state tax burden, freeing their money for reinvestment elsewhere.<\/p>\n","protected":false},"author":104275893,"featured_media":51377,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rkv_browse_by_id":0,"rkv_cta_id":0,"rkv_optimize_for_pagespeed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"useModifiedDate":false,"customPublishDate":"","_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[509474089],"tags":[],"intuit_collection":[],"intuit_series":[],"coauthors":[509474241],"class_list":["post-51373","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-law-and-news"],"header_image":"","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Cost segregation and benefits to your clients - Tax Pro Center | Intuit<\/title>\n<meta name=\"description\" content=\"Cost segregation is an often-overlooked path to financial relief; 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