As the CEO and Founder of L.A. Property Management Group and Crown Commercial Property Management, I have seen firsthand the impact of property depreciation on owners’ tax bills. A few years ago, a client of mine was struggling with the rapid depreciation of his short-term rental cottages. After discussing the issue with my accountant, he suggested a cost segregation study to help the owner claim more depreciation in the early years and reduce his tax bill. The study paid for itself in the first year and has been a valuable tool for my clients ever since.
A cost segregation study involves dividing a property’s components into categories that depreciate at different rates. This allows for a more accurate deduction for depreciation and can potentially add to short-term cash flow. The study is becoming increasingly popular among property owners and managers as a way to maximize tax benefits and increase property value.
The process typically begins with a feasibility analysis to determine if the property is a good match for a cost segregation study. An engineering team will then conduct a property inspection to identify components that qualify for short-life treatment. The results are compiled into a detailed report that is audit-ready and follows the IRS’s guidelines. The whole process generally takes 30 to 60 days to complete.
As property managers, our responsibility goes beyond just maintenance and rent collection; we should also be looking for ways to help our clients maximize their property’s value. I encourage other property managers to explore cost segregation studies as a way to save their clients money in the long run. For property owners, seeking out progressive investment strategies like cost segregation studies can enhance the ownership experience and improve financial outcomes.
It’s important to note that the information presented here is not intended as investment, tax, or financial advice. It’s essential to consult with a licensed professional to determine the best course of action for your specific situation. The Forbes Business Council is a leading organization for business owners and leaders, offering growth opportunities and networking. If you qualify, it may be worth considering membership for access to valuable resources and connections in the business world.
