If you own a commercial or residential rental property, you would greatly benefit by having a cost segregation study done on it. The aim of a cost segregation study is to reclassify the assets found in a property into their different depreciation periods. If you property, you might notice that it is composed of a set of different assets and not just a single piece of property.
Every property owner of buildings and other similar properties must be aware that what comprises such assets can have different depreciation periods. Different component may depreciate in value faster than the others. If you treat it as a real property with a single depreciation value, you might find yourself paying somewhat higher taxes. And it might even be more advantageous for you in the long term. A good reason for this is because some of the components of the real property may require repair earlier than the other components, thereby depreciating its value. But by treating your property as a whole, you are still paying the same taxes for the said property.
And it is because of this difference in depreciation values that having your property go through a cost segregation study will be very beneficial. Cost segregation tries to assess commercial as well as rental residential properties according to the depreciation of the different components on a certain time period. Such asset components can be assessed into five, seven, fifteen and 39 year periods. This will help segregate the different parts of the property according to how quickly they depreciate. Such assets include electrical systems, plumbing, non-structural furniture, fixtures and other equipment. Longer termed assets include, utilities, landscaping, paving, curbs and gutters.
Cost segregating your property will allow you to take advantage of tax savings by trying to adjust the timing of your deductions. Without cost segregation, you may be paying more than the actual value of your property because you will be paying your taxes for the said property as a whole. With cost segregation, some of your asset's life is shortened and the depreciation expense is accelerated. The taxes that you pay eventually decreases during the early stages of the life of your property. The money that you save can then be used for other investment opportunities or add into the operating expenses of your property.
With cost segregation, your properties are also enhanced in terms of their actual financial value. You pay your taxes taking into account the depreciation value of each property component and not just as a whole. Although a cost segregation study may take time, it would be to your own advantage that you have one done for your property. Such an undertaking may take months to finish depending on the size and scope of the property put under cost segregation. But once it is done, you will be able to see a better view of your property's actual depreciation value, component by component.