Our Approach
McGuire Sponsel’s unique approach to cost segregation employs civil, structural and architectural engineering knowledge coupled with tax law experience to identify components that qualify for accelerated depreciation. Our team’s blend of engineering and tax code expertise provides tremendous value throughout a project.
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What Are The Benefits of Accelerated Depreciation
Depreciation is an accounting method used to calculate the value of normal wear and tear for tangible property used in a trade or business. Businesses are allowed to depreciate their tangible assets over their useful life in accordance with rules set up by the IRS. By depreciating these assets, the business may gain needed tax savings. Commercial and residential building assets can be depreciated either over 39 years straight-line for commercial property, or 27.5 years straight line for residential property as dictated by the current U.S. Tax Code.
Accelerated Depreciation is an accounting method that allows the owner of an asset to depreciate the asset more quickly by using a shorter period of depreciation than the traditional straight-line method. The Internal Revenue Service (IRS) allows building owners this opportunity for accelerated depreciation by utilizing the Modified Accelerated Cost Recovery System (MACRS) to depreciate certain land improvements and personal property over shorter life than 39 or 27.5 years. Certain land improvements can be depreciated over 15 years at a 150% declining balance, with certain personal property depreciated over 7 or 5 years at a 200% declining balance.
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How Can Accelerated Depreciation Help My Business?
By using accelerated depreciation, an asset with a tax basis may now be written off more quickly. By doing this, a businesses’ taxable income can be reduced, and businesses can use those tax savings to invest back into their business. In order to appropriately accelerate the depreciation of your assets, property owners will need a cost segregation study. These studies should be performed by professionals with construction, engineering, and tax experience to correctly segregate the costs of your assets into either 5, 7, 15, 27.5 or 39-year lives.
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Advantages of Accelerated Depreciation
There are many advantages of having a cost segregation study done for the purposes of accelerating depreciation. Businesses may reduce their tax liability and their taxable income, which in turn will allow them to have access to increased cash flow. When a cost segregation study is performed, most of the benefit of accelerated tax depreciation will come both in the first year and the first few years after that. This is the greatest benefit of accelerated depreciation.
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Are There Any Possible Disadvantages?
Not everyone is in a tax situation where the use of accelerated depreciation would be beneficial to them. Factors such as 1031 exchanges, rehabilitation credits, passive loss traps, net operating losses are all affected by cost segregation studies and it is best to consult with a depreciation expert to ensure that a cost segregation study can be beneficial.
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What Should I Do Now?
The only way to have your assets depreciated properly is to have a detailed engineering-based cost segregation study performed on your property. For more than 25 years, the professionals at McGuire Sponsel have been providing hundreds of CPA firms and clients across the country with our engineering approach to cost segregation, which includes our work paper documentation and detailed engineering-based report that has held up to the scrutiny of IRS audits. If you have any questions about accelerated depreciation, give us a call or fill out the form below.
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As a seasoned expert in the field of cost segregation, I bring to the table a wealth of knowledge that spans both civil, structural, and architectural engineering, coupled with extensive experience in tax law. Over the years, I have demonstrated a deep understanding of the intricate intersection between engineering principles and tax code regulations, particularly in the realm of accelerated depreciation.
The unique approach employed by McGuire Sponsel reflects a comprehensive blend of engineering and tax code expertise. This distinctive method involves utilizing civil, structural, and architectural engineering knowledge to identify components eligible for accelerated depreciation. The team at McGuire Sponsel has showcased a remarkable ability to provide substantial value throughout the duration of a project, emphasizing the synergy between engineering insights and tax optimization.
Let's delve into the concepts discussed in the article:
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Depreciation and its Accounting Method:
- Depreciation is an accounting method for calculating the wear and tear of tangible property used in business.
- Tangible assets are allowed to depreciate over their useful life in accordance with IRS rules.
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Traditional vs. Accelerated Depreciation:
- Traditional depreciation involves straight-line methods over 39 or 27.5 years for commercial and residential properties, respectively.
- Accelerated Depreciation allows for a quicker write-off by using a shorter period, facilitated by the Modified Accelerated Cost Recovery System (MACRS).
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Benefits of Accelerated Depreciation:
- Accelerated depreciation helps reduce taxable income and allows for increased tax savings.
- By writing off assets more quickly, businesses can reinvest tax savings back into their operations.
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Cost Segregation Study:
- To implement accelerated depreciation, property owners need a cost segregation study.
- The study requires professionals with construction, engineering, and tax expertise to accurately segregate costs into different depreciation categories.
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Advantages of Cost Segregation:
- Businesses can experience reduced tax liability, increased cash flow, and significant tax benefits, especially in the initial years after the cost segregation study.
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Possible Disadvantages:
- Factors such as 1031 exchanges, rehabilitation credits, passive loss traps, and net operating losses can impact the benefits of accelerated depreciation.
- Consultation with a depreciation expert is recommended to assess the suitability of cost segregation in specific tax situations.
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Next Steps:
- The article emphasizes that a detailed engineering-based cost segregation study is the only way to ensure proper asset depreciation.
- McGuire Sponsel, with over 25 years of experience, offers a specialized engineering approach, including work paper documentation and detailed reports that withstand IRS audits.
In conclusion, McGuire Sponsel's expertise lies in navigating the complex landscape of accelerated depreciation, providing clients with a robust and proven approach that integrates engineering precision and tax code optimization.
