Most real estate and multifamily syndicators make use of cost segregation and bonus depreciation as part of their investment strategy to reduce tax liability and increase their cash flow.
But how does this work? Today, Makaan Investment Group, an expert on multifamily investment in Houston, Texas, will share how.
Cost segregation as part of passive investment in Texas enables taxpayers to deduct eligible depreciation amounts from assets in a building that have shorter recovery periods. It is a useful strategy for obtaining larger deductions in the property's early years. Compared to other tangible assets, rental properties and commercial buildings will experience a longer recovery period. For residential rental property, the depreciable life is 27.5 years, while for commercial property, it is 39 years. You can separate the parts of the property that depreciate more quickly using cost segregation. This helps you pay less in taxes and make more money. Bonus depreciation and Section179 expensing can also be used on property components that might not otherwise be eligible for these deductions. If not done properly, there are some drawbacks to incorporating cost segregation into tax planning, such as: - Cost segregation accelerates depreciation deductions that would otherwise be taken later. - Taxpayers are responsible for conducting a cost segregation study, which may involve hiring consultants. - Cost segregation can make your tax return more complicated by requiring you to fill out additional forms that inform the IRS that you are changing depreciation methods. Wise real estate investment means consulting with tax professionals before making decisions that will reduce tax liability and increase cash flow. Have someone with experience in the field to guide you to success today.