Money's worth today is typically greater than its worth in the future. This core financial principle is the underlying reason why real estate owners engage in cost segregation studies (CSS).
What is a Cost Segregation Study (CSS)?
A CSS is a strategic financial tool that allows you to accelerate depreciation expenses by categorizing a building purchase into different property classes, each having varying depreciation schedules. Instead of employing straight-line depreciation over 39 years, you can adopt quicker schedules by separating components like personal property, land improvement, and other asset classifications.
Benefits of Using the CSS Template
The CSS template provides an efficient way to get a sense of the cash flow advantages of cost segregation. It's not only useful for owners but also for firms that perform CSSs. Here's what you can do with the template:
- Analyze Different Asset Categories: Define up to 6 asset categories, with up to 129 unique items across them.
- Customize Depreciation: Manually set the depreciation percentage per year for each category.
- Compare Depreciation Methods: Evaluate the tax effects of straight-line depreciation versus CSS.
- Visualize Your Data: See the Year 1 savings, the NPV of 10-year and full-life tax benefits, the accelerated initial cost basis, and more, including a pie chart showing new allocations.
Some Key Notes about CSS:
- One-time Use: You can perform them only once per property during ownership.
- Retroactive Benefits: Realize missed tax benefits by doing them retroactively.
- Strategic Advantage: Access depreciation expense sooner, allowing you to invest or utilize the tax benefits.
Costs and Considerations
Engaging an outside firm for a cost segregation study may range from $5,000 to $15,000 or more, depending on property size and complexity. By using this template, you can get a valuable estimate of the benefits.
Disclaimer
I am not a tax professional, and this is not financial advice. Use this template at your own risk, understanding that it simply produces an estimate, and results may vary.
More Info
The template is versatile, working whether the CSS is being done in the same year as the building purchase or at a later date. Whether for property owners or professionals involved in CSS, this tool offers a robust way to navigate the complexities of depreciation.
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