Businesses which significantly improve, construct, or acquire a building — or did so within previous years — ought to consider a cost segregation study. It might permit you to accelerate depreciation deductions, thereby decreasing taxes and increasing cash flow. Plus, the possible benefits now are even greater because of enhancements to specific depreciation-associated breaks underneath the TCJA.
Tangible Personal Property vs. Real Property
Generally, IRS rules permit you to depreciate commercial structures over thirty-nine years. The majority of times, you will depreciate the structural components of a building — like windows, walls, elevators, HVAC systems, wiring, and plumbing — in conjunction with the building. Personal property — like machinery, equipment, fixtures, and furniture — is qualified for accelerated depreciation, typically over 5 or 7 years. Plus, land improvements — parking lots, outdoor lighting, and fences, for instance — are depreciable over fifteen years.
All too often, companies allocate all or the majority of a building’s construction or acquisition prices to real property and overlook chances to allocate costs to shorter-lived land or personal property improvements. Within some instances — furniture or computers, for example — the distinction between private and real property is evident. However, often the line between them is less obvious. Items which seem to be part of a building might, indeed, be personal property, such as removable floor and wall coverings, movable awnings, partitions, and canopies, signs, window treatments, as well as decorative lighting.
Additionally, specific items which otherwise might be treated as real property might be eligible as personal property if they serve more of a business functionality instead of structural purpose. That involves reinforced floors that support heavy-duty manufacturing equipment, plumbing or electrical installations needed to run specialized equipment or any dedicated cooling systems for the data processing rooms.
Cost segregation studies combine engineering and accounting methods that identify building expenses which are correctly allocable to the tangible personal property instead of real property. Even though the relative costs, as well as benefits of cost segregation studies, depending upon your particular circumstances and facts, it may be an excellent investment.
Depreciation Break Enhancements
The Tax Cuts and Jobs Act of 2017 enhance specific depreciation-associated tax breaks, which also may improve the advantages of cost segregation studies. The act, among other things, permanently increased limits upon Section 179 expensing. Section 179 permits you to instantly deduct the whole expense of qualifying equipment or additional fixed assets up to certain thresholds.
Also, the act expanded 15-year-property treatment to apply to eligible improvement property. This break previously was restricted to qualified retail improvement, lease hold improvement, as well as restaurant property. Plus, it temporarily increased 1st-year bonus depreciation to 100 percent (from 50 percent).
Evaluate the Possible Savings
A cost segregation study might yield significant benefits, yet they aren’t right for all businesses. To determine if a review would be worth your time, call us for help evaluating the possible tax savings.
For more information on our tax services contact wzwlh.com today!