When you purchase a rental property, the purchase price is allocated between land and building. There is no depreciation for land, and buildings are depreciated over a useful life of 27.5 years for residential property and 39 years for commercial property.
Often people take the benefit of the depreciation expense deduction a little bit each year over the useful life of the building. This is an incorrect method of depreciation, however, since the rental property is actually made up of 5-year, 15-year and 27.5-year categories. A cost segregation study allocates the appropriate costs to each of the useful life categories, to increase depreciation deductions and reduce your taxes.
By segregating the cost of the building, you increase the amount of depreciation expense you are allowed to deduct on your tax return. If you are able to pair the benefit of real estate professional status – REPS – with the cost segregation study you may be able to dramatically reduce your taxes. And if you add bonus depreciation, you can supercharge your tax benefits.
Please book a discovery call to find out how we can help you reduce taxes and increase wealth.
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Reducing Taxes – Increasing Wealth
Please understand that I cannot give you specific investment or legal advice, just guidance in these areas, and you should consult a professional licensed in these areas for specific advice before making any final decisions.
