Immediate Opportunities for Cost Segregation Studies for Small Businesses
Thanks to the Tax Cuts and Jobs Act (TCJA), most tax rates will be lower in 2018. Businesses and individuals have an opportunity to take as many deductions in 2017 as possible, even if those deductions reverse in 2018. If your business recently acquired, constructed or substantially improved a building, a cost segregation study may be a great way to take advantage of these permanent tax savings. Rob Haggerty, Tax Partner, covers cost segregation studies and the tax savings opportunities immediately available to small businesses in this month’s “Financial Fitness” column, as featured in Small Business Monthly.
How does a cost segregation study work? Cost segregation, or cost seg, is an engineering-based approach to allocate building costs among the various building components to maximize depreciation expenses by classifying qualified assets into shorter lives. A cost seg study can help save you money by increasing depreciation deductions, reducing taxes and increasing cash flow.
What opportunities can I take advantage of now? You want to maximize your deductions in 2017 while tax rates are high. As the deductions turn in the future, rates will be lower, so it creates a permanent benefit. In order to take advantage of this opportunity, a cost seg study must be performed and reported on your 2017 tax return, which could be due as early as March 15, 2018, if an extension is not filed.
- Do a cost seg study for 2017 additions. Any new assets you placed in service could be an opportunity for cost seg.
- Take a catch-up adjustment. For pre-2017 additions, a cost seg study can be performed and a catch-up adjustment can be taken on your 2017 tax return.
- Property to be sold in a few years. If you recently decided not to perform a cost seg study because you didn’t think you were going to hold the property long enough to justify the cost of the study, the benefit of the permanent tax rate play may make it worth revisiting.
- Certain Q4 2017 acquisitions may be eligible for 100 percent bonus depreciation. Anything you placed in service during Q4 2017, especially anything you acquired (used property is now eligible), might be eligible for 100 percent bonus depreciation. A cost seg study will maximize the assets eligible for bonus depreciation.
A cost seg study will take some effort in analyzing your building’s structural components and making your case to the IRS, but it will likely be worth the time and effort. If you have plans to buy, build or remodel, or if you have done so within the past few years, now is the time to act.
If you believe a cost seg study could benefit your business, please complete the form here, and we will contact you with an estimate of the tax benefits and fee for a cost seg study on your building.