Cost segregation is a tax saving method that apparently has caught on with the opportunity sales people. I know I get a spam or two a week telling me I can make jillions of dollars by marketing cost segregation to the local business community. Since I receive so many solicitations I’m beginning to believe this tax cutting method has become diluted and now borders on farce.
I say diluted and borders on farce because I’m willing to bet the purveyors of this opportunity have driven the cost through the roof for the business person. I’m also thinking that if I was a businessman holding commercial real estate I’d already be using a CPA who knew about cost segregation. After all, when I studied accounting in college in the 1970’s we had to know about the lives of assets and the different depreciation schedules and write off periods.
It seems nothing has really changed except maybe the liberalization of some of the rules the IRS/Congress create regarding depreciation and its attendant write off periods. I could be wrong but I don’t think so.
The Essence of Cost Segregation
Cost segregation carves out shorter lived assets, which qualify for five, seven and 15 year write off periods. These are normally embedded in a building’s construction or acquisition costs. These would normally be depreciated over 39 years except cost segregation reclassifies these assets and accelerates the depreciation. This brings about tax savings and easier write offs when assets become obsolete.
For the life of me, wouldn’t your CPA or accountant already know this? Yes, if they stay on top of the latest changes to the tax laws. If they don’t, would you really keep paying them?
Back To Opportunity Or Hype
Since this method seems to work best only on properties valued at $1 million or more, it would seem to me the opportunity offering genre are selling a program that is behind the times and not exactly a money maker to the person who buys into the hype. Let me state that that is my opinion but it is based on what I know about the tax laws and the practitioners in the tax preparing arena.
If anyone has more detailed information on this opportunity as to how it really works ( I don’t mean cost segregation, I mean how you sell it), I’d like to hear it. After all, if it is for real, I’d venture the opinion there are business people willing to listen to the presentation.
Just my 2¢ on an opportunity in this wonderful world of real estate.
Photo Credit: tanakawho