The Benefits of Conducting A Cost Segregation Study
Conducting a cost segregation study and utilizing bonus depreciation is a great tax planning strategy for multifamily owners to accelerate depreciation, enhance cashflow, and improve ROI.
Strategic Tax Planning
Offset Passive Income: Depreciation deductions can be used to offset other passive income, minimizing the overall tax liability across an owner’s portfolio.
Accelerated Depreciation
Immediate Tax Deductions: Cost segregation allows owners to reclassify certain buildings components from real property (27.5 years for residential property) to personal property (5, 7, o r 15-year schedules) accelerating depreciation.
Bonus Depreciation: Under current tax law, bonus depreciation allows for 60% (2024) of qualifying assets to be written off if placed in service in 2024.
Enhanced Cash Flow
Reduced Tax Liability: By front-loading depreciation expenses, owners can reduce taxable income in the early years of ownership, leading to lower tax payments.
Increased Cash Reserves: Lower tax payments free up cash that can be reinvested into the property, used for capital improvements, or distribution to partners/investors.
Improved Return on Investment (ROI)
Boosts Overall Profitability: With increased cash flow and reduced tax burdens, the overall after-tax cash flow and investment returns are improved.
As always, consult with your tax advisor for executing on this strategy to determine if it’s right for you and your investment goals.
Kynan Pang, CCIM
RB-23513
808-225-8776
hawaiimultifamilyadvisor.com