Cost Segregation Pros & Cons

[Rohullah Sharifi]

Cost Segregation Pros & Cons

An area of interest to many new and current investors. However, what I noticed its explanation to them the proper pros and cons e.g. the recapture issue that 99% of them don't know about it. what could better and simple ways could you recommend as Tax Prep & professional during the consultation to clients. 

[Stanley Odum]

I would echo @Drago Stanimirovic's comments and add that "taking losses for the sake of losses (only to carry forward losses resulting from accelerating/bonus depreciation that will never be fully absorbed) is short-sighted and should be avoided." Most cost segregation providers and tax professionals recommend holding properties for a minimum of three to five years after performing cost segregation studies. This allows taxpayers enough time to minimize the effects of depreciation recapture by taking advantage of the time value of money ("a dollar today is worth more than a dollar tomorrow") and "The Eighth Wonder of the World" (compound interest) by reinvesting the tax deferral at a given rate of return (e.g., 8 percent for commercial property) and possibly assign diminished value to or reduce the amount of gain allocated to short-lived assets (Section 1245 property) taxed at ordinary income tax rates by allocating more gain to the building's structural components (Section 1250 property) taxed at a more favorable tax rate (up to a maximum of 25 percent) upon sale. Disclaimer: This is not tax advice. Consult with a licensed tax practitioner.