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Does Your Small Business Need a Cost Segregation Study?

Owning real estate as part of operating your small business can be painfully expensive. We’re not just talking about the purchase price – we’re talking about the taxes you pay year-in and year-out.

But did you know you can soften the blow? If you’ve purchased or built commercial real estate in the past decade, or if you’re thinking about buying, a cost segregation study can help you keep a little extra cash in your bank account.

What Is a Cost Segregation Study?

Buildings, just like a number of other assets, are subject to depreciation. The idea is that any building will sustain wear and tear over time that will decrease the value of that property, so the IRS allows you to deduct a certain amount from your income taxes annually to make up for this depreciation.

Many small business owners, for simplicity’s sake, opt for the “straight line” depreciation method to calculate their real estate’s value over time. However, a cost segregation study – performed by a combination of both tax experts and engineers – takes a closer look at your building(s) and breaks it down into different components. Depending on what those components are, parts of your building may be eligible for quicker depreciation; this shorter “tax life” boosts how much you can deduct every year.

The savings aren’t anything to sneeze at, either. A cost segregation study can save your small business 15 to 20 times what you pay for the study itself.

Am I Eligible for This Kind of Study?

We’d love to help out any small business that owns real estate, but a few real estate assets are simply out of bounds. If your building wasn’t bought, built, remodeled or otherwise altered since 1987, you’re out of luck.

And while accountants can perform cost segregation studies on buildings made eligible as far back as 1987, because of the length of time that building already has had to depreciate, the cost savings might not be significant on older properties.

Thus, we recommend this study only on buildings purchased or built in the past decade, or on a building you’re considering buying.

McMananon & Co., LLC has helped keep money in the pockets of many a small business via cost segregation studies. So if you want to know for sure whether you’re eligible, the best way to find out is to ask! Call us at 440.892.8900 or get in touch with us online, and we can evaluate your property free of charge to see if a cost segregation study is right for you.

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