Cost Segregation - Why isn't my CPA already doing this?

 Cost segregation is a tax strategy that involves identifying and separating personal property and land improvements from real property in a commercial building. By separating these items and depreciating them over a shorter life than the building itself, property owners can potentially save a significant amount of money on their taxes.

So, why isn't your CPA already doing this for you? There are a few potential reasons:

Your CPA may not be aware of cost segregation. While cost segregation has been around for many years, it is not a well-known strategy among all CPAs. Your CPA may not be familiar with the technique or its potential benefits.

Your CPA may not think cost segregation is relevant to your situation. In order to benefit from cost segregation, you must own a commercial building that was placed in service after 1986. If you do not own such a building, or if you have already fully depreciated it, cost segregation may not be relevant to your situation.

Your CPA may not have the expertise or resources to perform a cost segregation study. Cost segregation requires specialized knowledge and expertise in tax law and engineering. Your CPA may not have the necessary skills or resources to perform a cost segregation study.

You may not have requested a cost segregation study. While it is ultimately the responsibility of your CPA to identify potential tax-saving strategies, they may not automatically consider every possible option. If you are interested in exploring cost segregation, you may need to bring it up with your CPA and request a cost segregation study.

How does cost segregation work?

When a commercial building is constructed or purchased, it is typically classified as real property, which must be depreciated over a 39-year period for tax purposes. However, certain components of the building, such as personal property (e.g., furniture, equipment, and appliances) and land improvements (e.g., paved parking lots and landscaping), may be eligible for shorter depreciation periods. By identifying and separating these items from the building itself, property owners can potentially save a significant amount of money on their taxes by depreciating them over a shorter period of time.

To take advantage of cost segregation, property owners must conduct a detailed analysis of their building and its components, known as a cost segregation study. This study typically involves an engineering analysis to determine the nature and value of each component of the building, as well as a review of construction contracts, invoices, and other documentation. The study is then used to allocate the building's cost to the appropriate depreciation schedules.

Is cost segregation right for me?

Cost segregation can be a powerful tax-saving tool, but it is not right for everyone. In order to benefit from cost segregation, you must own a commercial building that was placed in service after 1986. You may also need to meet certain other requirements, such as having a significant amount of personal property or land improvements in your building.

Additionally, cost segregation may not be worth the cost for some property owners. The cost of a cost segregation study can range from several thousand dollars to tens of thousands of dollars, depending on the size and complexity of your building. In some cases, the potential tax savings may not justify the cost of the study.

It is important to carefully consider your situation and consult with a tax professional before deciding whether cost segregation is right for you. They can help you evaluate the potential benefits and costs and determine whether cost segregation is a viable option.

How can I find out more about cost segregation?

If you are interested in learning more about cost segregation and whether it is right for you, there are several resources available:

Consult with a tax professional who has experience with cost segregation. They can provide more detailed information about the process and its potential benefits and costs.

Review IRS guidelines and publications related to cost segregation. The IRS has issued several publications and guidance documents on cost segregation, including Revenue Procedure 2015-20 and Notice 2019-10.

Consider working with a specialist firm that offers cost segregation services. These firms typically have expertise in tax law and engineering and can help you conduct a cost segregation study and implement the resulting recommendations.

Overall, cost segregation can be a powerful tax-saving tool for property owners, but it is not something that all CPAs are familiar with or equipped to handle. If you are interested in exploring cost segregation, it is important to communicate with your CPA and determine whether it is a relevant and viable option for you.