As the real estate market is growing day by day, many investors choose to invest in multifamily properties. Multi-family properties’ prices are rising faster than ever, and these properties have the potential to generate great revenue for their owners.
However, a multifamily building requires high maintenance, and it is costly. A multifamily building can be written off in depreciation over 27.5 years by its owner. Certain components of the property can be depreciated much earlier. It requires cost segregation study.
Today, we’re going to tell you about the cost segregation study for multifamily real estate buildings.
What is cost segregation for multi-family real estate?
Accelerated depreciation is a process through which multi-family property owners can write off the cost of improvements that their multi-family building needs earlier than the normal period of time. Usually, this period is 27.5 years for a multifamily building.
Accelerated depreciation requires “cost segregation study.” Cost segregation study is a study that helps to identify the multifamily building owner about two main types of assets or property that can be depreciated. Cost segregation study helps to minimize the taxable income of a multifamily property.
With a cost segregation study, multifamily owners can identify the components of the building that can be depreciated much faster. Components of the building can be depreciated in 5, 7, and 15 years. It can cause the owner to have a large amount of depreciation in a short amount of time.
How does a cost segregation study for multifamily building works?
A segregation study is done by an individual person or a group of experts. These experts thoroughly investigate your multifamily building and tell you what specific parts of your multifamily building are structural and non-structural.
Structural elements of your multifamily building can’t be depreciated faster, while non-structural items can. Experts also identify the land improvements, and this is depreciated over a 15-year time period.
Benefits of having a cost segregation study for your multifamily building
By hiring experts to do a cost segregation study for your multifamily property, you can get numerous benefits. Some of the most effective ones are listed below.
· Improved cash flow
Cost segregation study helps you to improve your cash flow. As mentioned earlier, a cost segregation study helps you recognize the assets that can be depreciated faster. It can help you to gain a higher amount of depreciation. A higher cost of depreciation means that you will have more money in your hand. Hence, this will increase your cash flow.
· Opportunity to scale-up your business
Cost segregation study helps multifamily investors to reduce their taxable income. Reduced taxable income means that you can invest your tax in some other businesses or property. It will help you to scale-up your business, and you will be able to generate higher revenue.
These are some of the excellent benefits which you can get by having the study mentioned above.All the details about what is cost segregation study, including how it is done.