TCJA Hot Topics: Cost Segregation
Tax Partner Rob Haggerty has been helping our clients with a number of issues related to tax reform, specifically bonus depreciation and cost segregation. Here are a few questions Rob has been answering:
Q: I put a qualified asset in service in 2017. Is it worth extending my tax return beyond 3.15.18 to take the time to conduct a cost segregation study?
A: The current tax climate provides a perfect opportunity for a cost segregation study. The study can classify qualified assets into shorter lives and make them eligible for bonus depreciation. Qualifying new assets placed in service during 2017 are eligible for 50 percent bonus depreciation and, as a gift from TCJA, both new and used qualifying assets acquired and placed in service after September 27, 2017 are eligible for 100 percent bonus depreciation. These deductions are worth more in 2017 while tax rates are higher providing a larger permanent tax benefit to taxpayers. It is worth talking with your tax advisor about the possibilities.
Q: How do I know that investing in a cost segregation study is worthwhile?
A: We can help you assess that with our complimentary cost segregation assessment. We just need a few details about your project to get started. Please complete this form, and we will contact you with an estimate of the tax benefits and fee for a cost segregation study on your building.
Q: I made qualified improvements to my rental property two years ago. Can I take advantage of a cost segregation study, or am I too late?
A: You can absolutely take advantage of a cost segregation study. The IRS allows you to take a catch-up adjustment, which makes it as if you were always depreciating those assets based on a cost segregation study from the beginning, but the cumulative deductions can be taken on the 2017 tax return.
Q: Is there a dollar threshold for the cost benefits of a cost segregation study?
A: It depends. In most situations, the benefits outweigh the cost of a study. For certain construction projects below $750,000, the cost may exceed the benefits; however, there are several factors that can affect the benefit. Consider factors such as the type of building: for a manufacturing building, it almost always makes sense. Everything is worth a look, and sometimes the parking lot is worth enough to do the study, which could then reveal other savings for you.