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TAX ACT 2017 - More Cost Segregation Benefits

The Tax Act of 2017 (affecting 2018 and years beyond) provides even more significant benefits to the already positive attributes of cost segregation. A properly prepared engineering analysis of acquired or constructed real estate results in the maximum dollars being categorized as personal property for tax depreciation purposes. Said another way, taxpayers want costs for improvements (excludes land) placed in the shortest tax lived accounts: 5, 7, and 15 years. The benefit is more tax depreciation in the earlier years, resulting in saved taxes.

The new Tax Act sweetens the pot. Bonus depreciation for qualified property (new and used personal property) is now 100% expensed. In addition, Section 179 property may be expensed up to $1 million in purchase cost.

There is a catch to all this good stuff. The person (firm) performing the cost segregation must have significant and positive experience supporting the work product with the IRS. The market for cost segregation services has expanded, as more taxpayers are aware of the service benefits. Meaning, that trusted tax advisors (legal and accountant) are more aware of and willing to refer their clients for cost segregation. At the same time, the IRS is focused on auditing these studies. With the expanded market, more "players" are claiming their expertise in providing these services. Buyer beware. We have seen reports done by very unqualified persons, which we know the IRS will reject, assuming they uncover it. Typically, low fees usually indicates low quality.

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