Learn how a cost segregation study can give multifamily owners substantial tax benefits and improved after tax cash flow
As a multifamily owner, your ultimate goal should always be to maximize your return on investment.
Cost segregation can help. Once only used by large accounting firms and the biggest real estate owners, it’s now become commonplace for multifamily property owners of almost every size.
What is cost segregation for multifamily properties?
Cost segregation is an IRS-approved tax planning strategy that allows real estate investors to take advantage of the depreciation in their properties. It works by allowing multifamily property owners to front-load their depreciation schedule and get immediate tax benefits from it.
Multifamily owners who have a cost segregation study (CSS) performed on their property or properties have the opportunity to defer substantial tax payments and greatly improve their cash flow.
How does a cost segregation study work?
We recommend that you conduct a cost segregation study immediately after acquiring a multifamily property. Why? Because it’s your opportunity as the new owner to take bonus depreciation in the year you put the property in service—in other words, the year you purchase it. You are able to write certain components of the property off as depreciable assets that exact year.
A cost segregation study will analyze the real property (the structure, the foundation, and the land under the property) and the personal property (AC units, cabinets, countertops, appliances, hot water heaters, and so on).
What are the benefits of cost segregation for multifamily properties?
By breaking down a multifamily property into all of its components, a cost segregation study can have a tremendous impact on your return on investment.
“In a recent sale we facilitated, the owner was able to get back almost 50% of their down payment on the property that year in tax deductions, due to the bonus depreciation of a cost segregation study,” said Joe LaFleur, multifamily investment advisor at 100Units.com. “If you’ve purchased a property this year, it’s definitely something you should be looking into.”
Cost segregation resources for you
To help you learn more we’ve created a series of videos on cost segregation, where we answer frequently asked questions such as:
– How do major renovations affect cost segregation?
– Will a cost segregation trigger a tax audit?
– What threshold do you use to ensure that a cost segregation for your situation is worthwhile?
Visit our Resources page to watch now.
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