How Much Does Your Rental Property Really Owe Uncle Sam?

Tax filing season is one of the most important times in America especially to those who have invested in some businesses. As much as Uncle Sam wants its money, business owners also aim to save as much money as possible. One of the most popular industries in America is the rental market and those who have invested in it knows that the smartest way to find ways to save money during the tax season is by conducting a cost segregation study. 

What exactly is cost segregation? A cost segregation study is the practice of identifying and categorizing assets and finding out its worth for federal tax purposes. For example, those who are rental property owners need a cost segregation residential rental property study in which a professional would have to assess their building and identify which part can be classified as a personal property or as land improvements. A rental property doesn’t only consist of a building but also the land where it sits on, improvements made such as landscaping, and personal properties that is being used to enhance the aesthetics of the inside of the building such as refrigerators, stoves, dishwashers, and carpeting.

Depending on the size of the business, the owner can conduct its own cost segregation residential rental property study. However, this practice is only advisable to those who are managing a small-scale rental property. Meanwhile, rental properties with multiple units require a more specialized approached and may also need the help of an engineer and an appraiser for precise scaling. The responsibility of the appraiser is to inspect the property to identify qualified item and then calculate its total value and assigns it to its correct depreciation life.

According to expertcostseg.com, an effective cost segregation specialist should be able “to project a payback ratio of savings versus study cost….” A cost segregation study is very costly ranging anywhere between $10,000 to $20,000 or even upwards.

The results of the cost segregation study must abide by the IRS Tangible Property Regulations. Any discrepancy may result to the business being audited by the IRS and any evidence of deceit may pose serious consequences.