Planning consideration3

University of Miami **We aren't endorsed by this school
TAX 949
Jul 4, 2023
Uploaded by CaptainGoldfinch204 on
Planning considerations Cost segregation studies. Consideration of a cost segregation study is now more important than ever. A cost segregation study is an in-depth analysis of the costs associated with the construction, acquisition or renovation of owned or leased buildings for proper tax classification and identification of assets that may be eligible for shorter tax recovery periods resulting in accelerated depreciation deductions. The reclassification of assets from longer to shorter tax recovery periods also make these assets eligible for bonus depreciation resulting in even more substantial present value tax savings, especially with 100% bonus depreciation for qualified property placed in service from Sept. 28, 2017 through the end of 2022. Tangible personal property and land improvements identified in the cost segregations of acquired property placed in service after Sept. 27, 2017, are now qualified property for bonus depreciation purposes since the definition of qualified property was expanded to include used property. Cost segregation is especially critical to real property trade or businesses that may not claim bonus depreciation on QIP because of the election out of the interest deduction limitation. These entities may desire the tax benefit from the reclassification of personal property to shorter tax recovery periods resulting in accelerated depreciation deductions. The modification to the recovery period under ADS (to 30 years from 40 for property placed in service after Dec. 31, 2017) for residential rental property, as well as the 20-year ADS recovery period for QIP, also provides these real estate taxpayers with the ability to recover real property over shorter recovery periods. The IRS provides numerous automatic changes in accounting methods for missed opportunities to segregate bonus eligible assets and claim a catch-up section 481(a) deduction. These deductions can be significant with the filing on the Form 3115. Taxpayers should balance the numerous options with their fixed asset additions, renovations, and remodels. The repairs and maintenance regulations may provide deduction opportunities that both simplify reporting and deductions for states not complying with bonus depreciation. In cases where 100% bonus for QIP additions are the facts, there may be a second opportunity to take a partial asset disposal deduction on the abandoned assets replaced by the QIP.
Page1of 2
Uploaded by CaptainGoldfinch204 on