Tax Planning for Building Construction and Build-OutsSubmitted by Mission Financial Planning on March 22nd, 2019
If you have recently remodeled your dental practice, built out a leased space, or constructed a new building for your practice, you might want to consider having a Cost Segregation study done to maximize the tax benefits related to the project.
Rather than depreciating the cost of construction over 39 years, a Cost Segregation study “segregates” the materials and types of improvements that can be depreciated faster (5-, 7-, or 15 years instead of 39). The amount of total depreciation is the same, but dental practice owners may not be in the space or own the building long enough to realize the full tax savings when depreciation is spread over 39 years. More importantly, clients appreciate the extra cash flow that’s created by the bigger tax savings in the early years.
We have seen significant tax benefits from working with cost segregation specialists. The specialists provide the needed IRS documentation; an engineering-based study that breaks out the various aspects of the construction or build-out that qualify for quicker depreciation. The study documents precise information on the types of materials being used and the types of improvements that were made to determine which expenses can be reclassified into shorter-lived asset classes that the IRS allows you to write off faster.
Anyone who has purchased a building or completed a build out on a leased space should explore whether they can take advantage of a Cost Segregation study. This can even be used to go back and reclaim taxes from several years ago, without having to amend past tax returns.
To complete a Cost Segregation study, you’ll need to provide as much documentation about the project as possible, including invoices, blue prints and pictures, most of which should be available from the contractor. The tax benefits of taking depreciation over the next 5 or 7 years that would have otherwise taken 39 years to receive are significant; give us a call to discuss whether your project is a good candidate.