Too good to be true?
by Dennis Duffy and Craig Miller
Duffy + Duffy Cost Segregation Services
It’s not very often that a tax opportunity comes along that puts money in your client’s pocket instead of the other way around. However such an opportunity exists for clients with commercial property. If your client owns an office, factory, retail center, apartment or other commercial property, a tax technique called Cost Segregation allows the CPA to increase the client’s depreciation deductions in the early years of building ownership, providing extra tax deductions in the first 5 to 15 years and the owner(s) pay less income taxes. This also includes leasehold improvements. Unless you are familiar with Cost Segregation already, these may be additional tax deductions that you and your client did not know were available.
Sound too good to be true? There is a catch, actually two. This is not a tax credit or deduction, it is a tax deferral. Additional depreciation deductions used now will not be available later, meaning that taxes saved now will be repaid in later years. That’s bad news. The good news is that those taxes paid later will be in tomorrow’s less valuable dollars. Who would not want to get a dollar now and repay it in 20, 30, 40 years? Your clients get to keep the tax savings and use it in their business or to expand their holdings, or however you advise. Think of it as an interest-free loan from Uncle Sam.
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