Real Estate depreciation is a free tax write-off that allows investors to keep more investment dollars in their pockets. All properties that have a structure are technically depreciating while at the same time, appreciating in value. Why? Buildings age, and the government wants to incentivize construction so allows for the depreciation to be a tax write off. Commercial properties have a depreciation schedule of 39 years. Using a Cost Segregation strategy, rental property owners are able to accelerate a portion of the depreciating process.
What is Cost Segregation?
Cost Segregation is a tax strategy used to accelerate the depreciation process to increase cash flow and reduce the tax liability on rental income. This is done by breaking down all of the components of a property and classifying certain items such as a roof, or a refrigerator.
This is achieved by performing a cost segregation study. These studies are usually executed by third party firms or qualified engineers/CPA’s.
Benefits Of Cost Segregation
As mentioned earlier, Cost Segregation can increase cash flow and reduce the tax liability on rental income. This allows for investors to keep more investment dollars in their pockets!
Conclusion:
Using a cost segregation strategy can be very beneficial to real estate owners, especially commercial.
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