A cost segregation study can cut your taxes if you own investment property personally. That’s especially true if you inherit such property.
After an inheritance, you get a “stepped-up basis” (to current market value) and a new depreciable life for the property. However, commercial buildings and improvements must be depreciated over 39 years while residential properties held for investment qualify for 27.5-year depreciation. Thus, you’d only get 2.5 percent to 4 percent worth of depreciation deductions each year.
A cost segregation study might identify items such as carpeting and furniture as personal property, which can be depreciated over seven years. Money spent on land improvements, which includes parking lots and landscaping, can be recovered in 15 years. Some items may even qualify for five-year depreciation.
With shorter lives, assets can be written off more rapidly, boosting depreciation deductions. The sooner you take these deductions, the greater their value.
Many accounting firms can perform such studies or refer you to a specialist.
