Cost segregation is a strategy that commercial real estate investors use to maximize tax savings through bonus depreciation. Yonah Weiss is a business director with Madison SPECS and helps clients save tens of millions in taxes. He shares more about cost segregation studies, who should employ it and the types of properties that are most ideal.
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Key Insights
- People invest in real estate because of Appreciation, Cashflow, and Depreciation
- Appreciation is the equity growth over time, monthly/quarterly cash flow and tax benefits from depreciation
- Depreciation is a tax deduction that assumes the property value is going down over time so you are allowed to reduce the value over 27.5 years, 39 for commercial
- Cost segregation allows you to separate the components of the property to identify items that depreciate on a 5-year schedule (plumbing, carpet) and a 15-year schedule (land improvements, sidewalks)
- Cost segregation study is ideal for properties valued at $1 million and more
- On a $1MM property, a cost segregation study could result in a $40k annual deduction over 5 years ($200k in total savings)
- New tax law include Bonus Depreciation, which allows you to take all of the 5 and 15 year deductions in the first year
- Deductions can offset other passive income gains and for qualified real estate professionals, it can offset all income gains
- Watch Out: Depreciation Recapture Tax
Resources:
IRS: Cost Segregation Audit Techniques Guide
Tweet This:
“Your depreciation starts over from Day 1 when you buy the property”
Connect with Yonah:
Phone: 732-298-9002
Email: yweiss@madisonspecs.com
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