Cost segregation is a great way for healthcare professionals to pay less on income taxes. Do you own the building containing your healthcare practice? Have you paid $150K or more to build out the space you are leasing? Do you have investment properties?
If the answer to any of those questions is “yes,” the next question is: Have you had a cost segregation study performed on your building?
If not– you’re probably paying too much in income tax! The next step is to engage a cost segregation firm to perform a study– and start paying less.
I know you’ve heard of cost segregation, but you are not quite sure how it works. This is how cost segregation works.
Your building depreciates for tax purposes, which means you get a non-cash expense each year for the depreciation of your building.
The more expenses you have, the lower your tax liability. With straight-line depreciation, you are depreciating your building evenly for the tax life of your building. For a medical office building, the tax life is 39 years. You would take the amount you paid for your building (less the land cost) and divide that by 39 years. That is how much depreciation expense you get each year.
Now, what if you could get that depreciation expense sooner? This is how we use cost segregation. Did you know if you have a $500K building, you could save around $35,000 on your income taxes with cost segregation?
Some parts of your building wear out faster than 39 years. Carpet comes to mind. You are allowed to have an engineering-based, cost segregation firm do a study on your building, which breaks your building into its building components (parts and pieces).
Some of these components can be depreciated over five years, some seven, and some 15 years. A cost segregation study may find 50 to 70 or more components in your building that can be depreciated more rapidly than 39 years. The more depreciation expense you have, the lower your income taxes. A quality cost segregation firm will run a no-cost estimate on your building so you can see the expected tax savings benefit and fee before you decide to move forward.
If your tax professional has not mentioned this tax-saving idea to you, it’s not their fault– cost segregation is an engineering-based specialty and not something your tax professional would typically do for you. But it’s one of the ways a niche healthcare lender like MedTrust Capital Group can help our clients through a referral.
MedTrust Capital Group is committed to helping healthcare professionals improve personal cash flow. A cost segregation study on your property is a great place to start.