Recent changes in cost segregation laws have brought both challenges and opportunities for investors and businesses. The most notable development was the Tax Cuts and Jobs Act (TCJA) which introduced modifications to how depreciation is applied. These changes not only affect the depreciation periods for various assets but also present new opportunities for businesses to increase their cash flow through strategic cost segregation and the application of bonus or accelerated depreciation. The TCJA allowed any asset placed in a class life less than 20-years to be bonused by as much as 100% into year one.
Impact on Businesses:
The adjustments in cost segregation laws can significantly impact businesses across numerous sectors. For instance, the TCJA shortened the recovery period for qualified improvement property (QIP) from 39 years to 15 years, making it eligible for accelerated depreciation. This change, retroactive to assets acquired on or after September 27, 2017, presents businesses with an opportunity to revisit previous property investments and potentially claim additional tax benefits.
Opportunities for Retroactive Studies:
One of the most noteworthy aspects of the TCJA and bonus depreciation is the application of it is based on when the asset was placed into service and not when the study is performed. This means that a real estate property that was initially rented in 2018 can have a cost segregation study performed today and still take advantage. Businesses that made property investments on or after September 27, 2017 may be leaving significant tax breaks on the table. In a time when costs and inflation or high, reclassifying the depreciation of their assets via cost segregation could lead to increased cash flow.
Navigating the Complexity:
As an industry expert, my role is to guide businesses and investors through the complexities of these recent changes and how they apply to you and your tax situation. I emphasize the importance of collaborating with your tax and financial team to ensure compliance with the code. The tax code surrounding depreciation and real estate is incredibly tax-payer friendly, but the benefits don’t fit every situation. This proactive approach not only helps businesses capitalize on new opportunities but also mitigates the risk of non-compliance. All of our work is backed by audit protection and performed using IRS approved software.
Strategic Considerations:
Beyond the immediate impact, businesses should consider the long-term strategic implications of recent changes in cost segregation laws. By aligning their financial planning with the updated legislative landscape, businesses can position themselves for sustained tax savings, improved cash flow, and enhanced overall financial performance.