Why You Should Consider Doing a Cost Segregation Study in 2024

The year 2024 is just around the corner, and as the year approaches, business owners are left with the question: should I do a cost segregation study in 2024? If you are a business owner or commercial property investor, you know how valuable tax benefits are for your bottom line. In this post, we will dive into cost segregation studies, what they are, how they work, and why doing one in 2024 is a smart move. Whether you own a small business or a large corporation, a cost segregation study can help you save money on your taxes, so let's learn more about it.

What is a cost segregation study? A cost segregation study is an IRS-approved method of identifying and depreciating property assets into shorter lives, thereby reducing a business's income tax liability. This approach accelerates tax deductions by segregating personal property from real property assets. Personal property includes items like shelving, carpets, and furniture, while real property assets include walls, ceilings, and floors. This means property depreciation can be accelerated, and deductions can be taken sooner, reducing your tax payments and increasing your cash flow.

How does a cost segregation study work? A cost segregation study requires the expertise of a specialist who will investigate and classify your property assets based on their tax depreciation value. The specialist will analyze the property’s blueprints, site plans, and equipment records. This information will provide insights into what assets qualify for an accelerated tax depreciation. The specialist’s report will then be submitted to the IRS, lowering your business’s tax liability.

Why do a cost segregation study in 2024? Doing a cost segregation study in 2024 is an excellent idea because it may be the last year of a favorable tax provision. In 2017, the Tax Cuts and Jobs Act (TCJA) introduced Bonus Depreciation, allowing taxpayers to deduct 100% of the cost of qualified property until 2022. This means that 2024 could be the last year to take advantage of this provision. With a cost segregation study, you can generate eligible Bonus Depreciation deductions for your commercial property renovation, construction, or acquisition. You can also claim benefits from other provisions that may be renewed or extended in 2024.

Another benefit of doing a cost segregation study in 2024 is that it can help you improve your property cash flow and increase ROI. Cost segregation studies have the potential to result in improved cash flow. As more substantial tax deductions become available, you will have more money available to reinvest in your property, create a compelling value proposition for renters and tenants, and ultimately increase your property’s overall ROI.

As we have learned, cost segregation studies can be an excellent way to reduce your income tax liability while increasing your business's cash flow. The year 2024 may present a favorable and possibly the last opportunity to benefit from Bonus Depreciation. A cost segregation study can help you qualify for this provision, lowering your taxable income and increasing your property’s ROI. You can also claim other eligible tax provisions that may be renewed or extended in 2024. If you are a business owner or a commercial property investor, it's worth exploring the benefits of a cost segregation study in 2024 to determine if it is the right move for you.