Why Is Cost Segregation Important

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Cost Segregation
How new regulations can benefit your business

Cost segregation studies have been a helpful way for businesses to get some pretty hefty tax benefits over the years. Due to some recent tax law changes and extensions, better defined guidelines for what business can expense and capitalize are resulting in even greater tax benefits. If you acquired, constructed or renovated commercial or residential property this past year, now might be a good time to consider a cost segregation study.
Cost segregation helps taxpayers categorize their building components into separate units of property that can be capitalized or expensed. Depreciating these costs over five or seven years allows for those deductions to offset taxable income, which results in additional cash flow. …show more content…
The difference between expensing and capitalization dictate whether a company can deduct the full remaining asset basis or spread the deduction out over the course of many years, which result in significant tax differences. Under the new regulations, what defines a repair expense versus a capitalized improvement cost will be determined by a case by case analysis of the full scenarios rather than the overall cost itself.
The new regulations make it so that any expenditure resulting in the “betterment” of the property must be capitalized. Betterment will include anything strengthening or improving capacity, efficiency or quality. This leaves any costs related to maintaining the property and keeping it in consistent working condition to be expensed. Therefore, things like office remodeling, replacing HVAC system components or roof membranes are considered expenses due to only finishes being
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