Cost Segregation Audit Techniques Guide Table of Contents

What is cost segregation?

Cost segregation is a method generally used for businesses to increment short term cash flow. This is done by deferring tax liabilities in favor of specific accelerated depreciation on qualified assets.

Cost segregation analysis basically classifies assets for federal tax purposes.

Some of the benefits of cost segregation depreciation

  1. It leads to an immediate increase in cash flow
  2. Helps in deferral of taxes
  3. Reduces current tax liability
  4. It gives on the chance of reclaiming “missed” cost segregation depreciation deductions from earlier years, without really having to amend tax returns.

There are some myths that come with cost segregation.

Debunking cost segregation myths

  1. Cost segregation does not work on short-term holds

Those who have dealt with cost segregation depreciation enough would know that this is not true. When a property is bought, it is likely to have enough organic equity. That is without added value or capital expenditure to increase the market value to sell it.

  1. Cost segregation basically only a difference in timing

Though this may be true up to a certain point, it is not the whole truth. Cost segregation essentially shifts depreciation from a 27.5- or 39-year asset to a three, five, seven or even 15 years. Then it later uses the depreciation to offset your taxable income and reinvest those funds to update the property.

  1. Cost segregation is too expensive

It is not really that expensive, honestly. Cost segregation analysis need not be done only during the tax season looms over you. If the projected tax savings can be applied to annual projections to reduce these tax payments for an immediate impact cash flow.

Who can use cost segregation analysis?

If you wish to know whether you too can benefit from cost segregation analysis, then you got to answer yes to any of the following questions:

  • Have you recently bought a new building?
  • Have you recently built a new facility or are you planning to?
  • Have you recently remodeled or expanded an already existing building?

If you have answered yes to any of the above question, you too can benefit from cost segregation analysis.

In conclusion

Cost segregation depreciation holds benefits for those who know to handle it correctly. If you roll in an expert into this, you can effectively use cost segregation audit techniques to suit your needs.

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