Accelerating depreciation schedules using cost segregation studies
January 25, 2012
Thanks to the shaky economy, the country's property owners are struggling to find the funds to make necessary improvements to maintain or boost the value of their holdings. Some are using cost segregation (cost seg) studies to raise the money, Business Excellence reports.
As the news source explains, cost seg studies allow property owners to write off depreciation
of building assets at an accelerated rate rather than complying with the common 39-year depreciation schedule
that's typical in the country.
Specifically, cost seg studies separate building assets into real property assets and personal property assets. Real property pertains to structure, such as the walls and foundation, while personal property covers non-structural items and aesthetic improvements.
Personal property assets have a shorter useful life expectancy, and separating them results in a larger tax deduction. The funds from this can be reinvested in renovations or used to obtain another property.
It's important to note that while buildings and their assets depreciate, land itself does not, as it is not considered to lose value over time. Generally, its cost can only be recovered when it is sold.