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Intermediate1 hour11 terms

Cost Segregation: Key Terms Guide

Explore a curated collection of key terms that might be helpful when navigating the practicalities of a cost segregation study. This reference focuses on commonly referenced concepts, from execution to tax implications, to support your learning journey.

Term Collection

1

Adjusted Basis

The adjusted basis is the original cost of an asset, such as real estate, plus the cost of any capital improvements, minus any depreciation deductions and certain other adjustments. It's crucial for calculating taxable gains or losses upon sale.

Intermediate13-14 min
2

Depreciable Basis

The depreciable basis is the portion of an investment property's cost, excluding land value, that can be legally deducted over time through depreciation for tax purposes.

Intermediate11-15 min
3

Depreciation Recapture

Depreciation recapture is an IRS rule that taxes the gain from the sale of depreciated property at ordinary income tax rates, up to the amount of depreciation previously claimed, ensuring tax benefits are accounted for upon sale.

Intermediate15-18 min
4

Cost Segregation

Cost Segregation is an IRS-approved tax strategy that reclassifies components of a commercial or residential rental property into shorter depreciation schedules, accelerating tax deductions and boosting immediate cash flow for real estate investors.

Intermediate13-14 min
5

Tax Deferral

Tax deferral is the legal postponement of paying taxes on investment gains or income until a future date, allowing capital to remain invested and grow through compounding.

Intermediate13-16 min
6

Land Improvements

Land improvements are depreciable additions to land that enhance its utility and value but are separate from the land itself. These assets, such as fences, driveways, and utility systems, have a limited useful life and are subject to specific accounting and tax treatments.

Advanced5-6 min
7

Bonus Depreciation

Bonus depreciation is a tax incentive allowing businesses and real estate investors to immediately deduct a large percentage of the cost of eligible property in the year it's placed in service, accelerating tax savings and boosting cash flow.

Intermediate12-13 min
8

Tangible Personal Property

Tangible personal property refers to physical assets that can be moved and are not permanently attached to real estate. In real estate investing, understanding this distinction is crucial for tax purposes, depreciation, and property valuation.

Intermediate2-3 min
9

Capital Gains Tax

Capital Gains Tax is a tax on the profit realized from the sale of a non-inventory asset, such as real estate, calculated as the difference between the selling price and the adjusted cost basis.

Intermediate13-14 min
10

Depreciation

Depreciation in real estate is an income tax deduction allowing investors to recover the cost of an income-producing property over its useful life, excluding land value, thereby reducing taxable income.

Intermediate13-14 min
11

1031 Exchange

A 1031 Exchange allows real estate investors to defer capital gains and depreciation recapture taxes when selling an investment property by reinvesting the proceeds into a new "like-kind" investment property within strict IRS timelines.

Advanced15-18 min

Common Questions