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Does Cost Segregation Make Sense for You

The primary purpose of cost segregation is to increase depreciation in the early years of ownership to provide a tax shield. This assumes the owner:

1) has substantial taxable income and
2) can use the depreciation to offset federal and state income taxes.

There are a variety of cases where cost segregation does not make sense and one where it does. Cost segregation makes sense if you have substantial taxable income and can use the additional depreciation to reduce income taxes. For a person with no income, the additional depreciation simply provides a net loss carryforward (indefinite now) but no immediate benefit.

Passive partners in real estate investments can only use losses to the extent they have gains from passive assets. Whatever gains are generated from passive assets are typically small compared to the additional depreciation. There is benefit; it is just a cost-benefit analysis whether it is worth it. (We can do the analysis for you free as part of our preliminary analysis.)

To summarize, the ideal candidate for cost segregation has substantial taxable income he is not otherwise able to shield. Cost segregation can be very effective for this person. We have seen many cases where additional depreciation of $1,000,000 to $10,000,000+ was obtained at a very modest cost (see fee options tab).