RENT Magazine Q4'23

Most rental owners have not taken advantage of one of the best things the government has ever provided to rental owners – cost segregation. That’s simply because they weren’t informed. A COSTLY MISTAKE FOR RENTAL OWNERS: OVERLOOKING COST SEGREGATION Below are answers to frequently asked questions about cost segregation that reveal how much money you could be needlessly paying the IRS.

What is cost segregation? Q:


It is an IRS-approved method of accelerating your depreciation and yields approximately $50,000 to $80,000 in cash per million dollars of building value. Instead of depreciating your property as one unit over 27.5 years (or 39 years for commercial non- residential property), cost segregation breaks down your property into its parts and pieces. To put it into perspective, look at it like a Big Mac. When asked, most people would identify it as a hamburger. Not McDonald’s. To them it is “Two All Beef Patties, Special Sauce, Lettuce, Cheese, Pickles, Onions on a Sesame Seed Bun.” A cost segregation study does the same thing to your building. It separates its components, i.e., the flooring, wallpaper, crown molding/trim, cabinets,

counter tops, landscaping, etc. If you purchased or built a building after September 27, 2017, when the Tax Cuts and Jobs Act came into existence, you are allowed 100% bonus depreciation until January 1, 2023, when it drops to an 80% deduction on any identified personal property assets. It drops by 20% per year until “bonus” depreciation is gone and it goes back to the original benefits of doing a cost segregation study. So, don’t miss out on using cost segregation on the extra cash benefits. Assets that can be affected include hundreds of items and represent somewhere between 20-40% of your building that can be expensed, thereby reducing your taxable income.


Powered by