Cost Segregation Research Paper

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Cost Segregation: How to Sell Top Dollar Commercial Properties

Properties are very valuable investments where many people top up large amounts of their finances. These assets also come with big liabilities which, through time, grows in significant digits. Said liabilities include taxes, insurance, and other factors.

As the liabilities are rising, the value of any estate slowly goes down as well. This is what they call as depreciation. It loses its value thus, lowering its selling price. Commercial properties have the same behaviour in terms of its profitability.

One of the strategies that real estate experts would advise many is to cost segregation prior to putting up a property in the market. Initially, the purpose of this is to help …show more content…
By definition, cost segregation is the process of identifying the cost of every asset and which are taxable by the federal laws. This process can make drastic changes to the depreciation cost as well as the status of the property. It can cut the depreciable life of a property in up to its half with the excess amount considered as ordinary income. Basically, it is a process of segregating “personal property” and “land improvement‘ costs from other components specified in the federal tax code.

This can’t just be done in just one go. A specialist is required to conduct a study, specifically an “engineering-based” study that examines every aspect of the property. It is also a requirement from the IRS to submit a study report that forecasts the maximum depreciation benefits according to the standards and metrics of IRS auditing. Companies like Segregation Holding are responsible for gathering supporting documents as well as generating precise reports per IRS regulations. Benefits of Cost Segregation

Lower Tax Liability - As mentioned above, segregating components adjusts the total taxable amount. Since the depreciation rate lowers down, the remaining amount that is affected by mandatory federal tax lowers too. Property owners end up paying less tax and earning more from the profit that comes after the
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