1031 Blog Stay up-to-date on the latest 1031 News

Join the Crowd

Cost Segregation Benefits

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 for Cost Segregation

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.

What Are the Benefits of Cost Segregation

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

  • Maximize tax savings
  • Capture retroactive savings (unrecognized depreciation)
  • Increased cash flow
  • Tax Reform Impact on Cost Segregation

    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

    This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements are speculative in nature and involve a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC, member FINRA, SIPC.