When to Do a Cost Segregation Study and How it Can Benefit Your Business

As a business owner, one of your main priorities is to save money and increase profits. However, overpaying taxes can significantly hurt your bottom line. This is where a cost segregation study comes into play. It helps businesses of all sizes uncover hidden tax saving opportunities by accelerating depreciation on certain assets. But when is the best time to do a cost segregation study? Let’s take a closer look at when to conduct a cost segregation study and how it can benefit your business.

During Construction or Renovations

The best time to conduct a cost segregation study is during construction or renovations. This is because the IRS allows taxpayers to allocate the costs of newly constructed or acquired assets to shorter depreciation periods if they are segregated into specific categories. These categories include land improvements, building structure, and personal property. By conducting a cost segregation study during construction, you can take advantage of these shorter depreciation periods, resulting in significant tax savings.

After Acquisition of a Property

If you recently acquired a new property, it's a good idea to conduct a cost segregation study. This will allow you to allocate the cost of the acquired assets to the appropriate categories, resulting in accelerated depreciation and tax savings. It’s particularly beneficial if assets were not properly classified when the property was acquired.

When Making Significant Improvements

If a property undergoes significant improvements, it's important to conduct a cost segregation study afterwards. This will help identify any newly installed assets that may qualify for shorter depreciation periods. In some cases, assets that previously would not have been deemed as personal property may now be reclassified as such, which can lead to significant tax savings.

If You Haven’t Conducted a Study in a While

If you haven’t conducted a cost segregation study in a while, it’s important to schedule one soon. This is because tax laws and regulations change often, which means you could be missing out on potential tax savings. The IRS has recently released new guidelines for qualified improvement property, and maintaining proper records becomes increasingly important when filing cost segregation studies and tax returns.

When Making Large Purchases

When making large purchases, it’s important to consult with a professional tax advisor to help identify any assets that may qualify for shorter depreciation periods. Conducting a cost segregation study can help determine which assets qualify and result in significant tax savings.

Conclusion:

A cost segregation study can greatly benefit businesses by identifying tax-saving opportunities and accelerating depreciation. The best time to conduct a cost segregation study is during construction or renovations, after acquiring a new property, when making significant improvements, if you haven’t conducted a study in a while, and when making large purchases. By working with a professional tax advisor, you can ensure that your business is taking full advantage of these tax savings opportunities and maximizing your bottom line.