Last week we introduced you to Cost Segregation and how it works. Today we'll discuss the benefits of Cost Segregation Studies and how some investors pair them with a tax-deferred 1031 exchange. Let's begin with the eligibility requirements of property for Cost Segregation Studies.

Eligibility

Real property eligible for Cost Segregation includes buildings purchased, constructed, expanded, or remodeled since January 1, 1987. In general, property with depreciable costs of $750,000 or more could benefit from a cost segregation study.

Benefits

A few of the main benefits of a Cost Segregation Study could include:

Tax Reform

What many real estate investors may not know is that the 2018 Tax Reform changed the way Cost Segregation works. Now, rather than having several different categories of property being depreciated at different rates, all short life assets can be written off in a single year, and those losses carried forward if unused. What this means is that a Cost Segregation Study just got a whole lot more valuable! Now, you can get a significant write off right away, or choose to shelter your properties cash flow for years. What is more, if this type of accelerated depreciation schedule is not your cup of tea, you can choose to opt for a traditional depreciation schedule. The choice is entirely up to you and your CPA.

1031 Exchanges & Cost Segregations

Due to depreciation recapture, Cost Segregation may not be advantageous for those who plan on holding the property for three years or less. However, if a proper 1031 Exchange strategy is in place, all gains and depreciation recapture can be deferred, and the advantages of both of these tax strategies can be achieved. In this case, Cost Segregation Studies would have to be performed on replacement properties to avoid future tax.

Call us today to learn more about how a Cost Segregation paired with tax-deferred 1031 Exchange could benefit you. – (844) 533-1031

While the information provided above has been researched and is thought to be reasonable and accurate, 1031 Crowdfunding are not lawyers or tax professionals. It’s important to consult with a licensed tax professional regarding your personal tax situation.

Cost Segregation is the practice of identifying personal property assets and their costs and classifying those assets for federal tax reporting purposes.

Last week as you read about the necessity of adhering to the debt replacement principle when completing a 1031 exchange, you may have had one important question running through your mind: “Can I obtain debt to meet my 1031 exchange requirements if I invest in a Delaware Statutory Trust (DST)?”

“Why do I owe taxes on the property I sold when I completed a 1031 exchange with the purchase of a new property?” This is a question that is far too common by 1031 exchangers. The usual answer is Boot.

DSTs Reduce TIC Drawbacks

During the 1990s and early 2000s, most 1031 exchange investors who exchanged properties for partial ownership in large, high-valued replacement properties participated in the Tenant-In-Common (TIC) structure.