Unpacking the IRS Cost Segregation Audit Techniques Guide
Cost segregation studies are complex undertakings that require a breadth of expertise and experience. The IRS Audit Techniques Guide outlines the complexities of cost segregation studies, and also lists the 13 elements that define a “quality study.”
Cost Segregation on Residential Real Estate
Anyone who owns an apartment, a duplex, or a single-family rental home is already claiming depreciation on residential real estate. But taxpayers that are still using the “default” 27.5-year, straight-line method of depreciation are missing out on a tax-saving opportunity.
Depreciation Methods: Straight Line and Declining Balance
The simplest method of depreciation is the straight line depreciation method, which simply deducts the cost of an asset evenly over the course of its recovery period. However, other methods of depreciation such as the declining balance method result in larger expenses in the early years of an asset's life.
Tax Savings Comparison: Regular Taxpayer vs. Real Estate Professional
Cost segregation can still be appealing for taxpayers who do not qualify as real estate professionals. Depreciation from a rental property can be used to offset that property’s rental income. If depreciation expenses exceed income, then the expenses are carried forward into the next tax year.
Capital Gains: Past, Present and Proposed Changes
This article will focus on how capital gains are assessed in the United States, proposed changes under the American Families Plan, and common strategies for deferring capital gains.