People frequently cite several advantages of owning a rental property. These properties can improve your finances with monthly cash flows and annual tax write-offs.
One of the most valuable write-offs is depreciation. Most rental property owners depreciate their property over 27 to 28 years. This period comprises what the IRS calls the “useful life” of a house or other building.
As a property owner, depreciating components of the home more rapidly offers several advantages. The question is, how can you accomplish this?
One strategy is to hire cost segregation services. A cost segregation analysis can help you separate personal property and land improvements from your real property.
This way, you can save money on taxes. If this appeals to you, keep reading! We’ll explore five benefits of cost segregation studies in the guide below.
1. Depreciating Property Assets Over a Shorter Tax Life
The first benefit of a cost segregation study is the source of the others. This process helps you depreciate some of your property assets over a shorter tax life. Generally, this lifespan falls at five, seven, or 15 years.
You may remain unclear about how this works. If so, think of it like this.
The average building has several components, including:
Many of these components outlive their lifespan well before the useful life of their building. So, using a cost segregation study can help you depreciate your assets at a more realistic lifespan.
2. Earn More Money on the Front End of Your Investment
It costs a lot of money to purchase a real estate property. Fortunately, you can earn a bit of that capital back with the right cost segregation analysis.
When you accelerate your depreciation, you receive more capital in the first few years of ownership. This way, you can use the funds to replenish your finances, cover operating expenses, or invest in new locations. Tri-Merit Accounting can help you find the best use for these funds.
3. Discovering Losses Early
Cost segregations can also help you discover potential losses early in your investment. This way, you can save money by carrying those losses forward. This way, you can decrease later tax burdens in the coming years.
4. Saving Money on Insurance
Once you receive a cost segregation study, show a copy of it to your insurance provider. This study can help them understand your risks more comprehensively. As a result, they can shift their focus to accurately underwrite your insurance costs, saving you significant amounts of money.
5. Compounding Tax-Free Income
Accelerating depreciation helps investors generate tax-free income, which compounds with time. Eventually, you can sell this asset and reinvest your proceeds into a similar investment type. Most investors pursue this through a 1031 exchange.
This way, you can begin depreciating again, helping you make more tax-free income. Investors can use this strategy to defer on paying taxes while also building additional equity.
Find the Cost Segregation Services You Need!
As you can see, a cost segregation study provides significant benefits to investors. You can use these benefits for several purposes.
First, though, investors must find cost segregation services to perform this analysis. So, find the best services online today!
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