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Cost segregation research calculations and methodologies

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Expertcostseg Oconnor
Cost segregation research calculations and methodologies

Through reclassifying certain real property assets as personal property, Cost Segregation studies provide a strong tool for commercial building owners to unlock depreciation deductions, decrease tax loads, and enhance cash flow. Cost segregation is a prudent and IRS-approved method of depreciating commercial real estate. Visit our website at https://www.expertcostseg.com/.

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Bonus Depreciation vs. Cost Segregation

Bonus depreciation is cost segregation!

Bonus Depreciation is a specialized type of cost segregation. Cost Segregation, in the broader sense, is a process where a commercial, for-profit venture may identify or segregate the personal property assets and the structural component of a property for the purpose of more accurately detailing their respective tax depreciation.

In its current form, Bonus Depreciation, as established by the Tax Cuts and Jobs Act of 2017(TCJA), is a tax incentive provided by the government that allows an owner of a for-profit commercial asset to immediately deduct a large percentage of the purchase price of eligible assets acquired or constructed within the mandated time frames, thereby significantly accelerating depreciation. However, to be eligible, the asset must be purchased or constructed after September 27, 2017, and/or before January 1, 2023.

Beyond the benefits of enhanced cash flow, a quality cost segregation analysis can be a key component in keeping you compliant with IRS regulations. In addition to breaking out all short-term depreciable items, O’Connor is a cost segregation company that routinely provides a breakout of all existing Units of Property per the 2014 IRS Tangible Property Regulations.

Assets are reviewed and selected improvements (Tangible Personal Property and/or Land Improvements) are depreciated over 5, 7 or 15 years, rather than 39 years for commercial property or 27.5 years for apartments. The identified short items are depreciated via either 200% declining balance (5 & 7 year assets) or 150% declining balance (15 year assets) thereby further enhancing your depreciation.

Once the decision to proceed has been made, O’Connor team members will work closely with you and/or your CPA or financial/tax manager to collect existing data and documents regarding the subject property. To prepare your report, an appraiser inspects the property, identifying eligible items, then calculates their value and distributes each to its correct depreciation life, according to IRS rules and Federal Tax Courts decisions.

Next, we issue a final report, providing detailed cost allocations for the individual 5, 7 and/or 15-year classifications, along with the 39 or 27.5 year classifications. The latter are broken out into the nine “units of property” called out in the 2014 IRS Tangible Property Regulations.

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