PODCAST: Cost Segregation and the New Tax Law

Published on: 09/17/2018 By: GSG

The following podcast discusses how taxpayers are benefitting from a key takeaway of the Tax Cuts and Jobs Act (TCJA) – the expansion of bonus depreciation.

Under the new tax law, a cost segregation analysis benefits taxpayers and property owners.

As an overview, cost segregation is an analysis of a real estate property where engineers identify portions of real estate that could be treated as personal property for federal tax purposes.

Normally, if real estate is commercial, it’s depreciated over 39 years, and if it’s residential rental, 27.5 years. On the other hand, personal property could be either 5, 7, or even 15-year depreciation lives.

With the ability to break down the components of a real estate property into these personal property type of categories, property owners are going to be able to write off depreciation much sooner.

A major aspect of this change in the new tax law is bonus depreciation.

Bonus depreciation has improved. Back in 2001, bonus depreciation was implemented to allow a taxpayer to write off a portion of an asset in the year that it was acquired. Prior to the new tax law, bonus depreciation was 50% of the asset you could write off in the year of purchase.

Now, with the new tax law, you can write off 100% of the actual asset value.

Another improvement of bonus depreciation is that previously, it would only apply to a brand new asset. Now under the new tax law, even if you buy an asset that has been used – such as an existing building – you can still reap the benefits of bonus depreciation.

When do you start thinking of bonus depreciation?

Contact a cost segregation firm as soon as you purchase property. Eventually, your accountant will need the cost segregation report in order to prepare a tax return.

In a situation where the real estate owner wants tax projections in advance, the sooner they can obtain a cost segregation analysis, the sooner an accountant can give them an idea of what type of additional depreciation they can obtain.

GSG collaborates with many cost segregation firms – both national and regional.

Cost segregation firms are completely involved in the report. They look at the blueprints and plans, and they make onsite visits, allowing them to analyze and breakdown all components of the real estate property.

If you have any questions about a cost segregation analysis or the expansion of bonus depreciation, please contact us today.

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