by Katz, Sapper & Miller’s Veterinary Services Group
This article originally appeared on ksmcpa.com
Has your veterinary hospital considered opening an additional location or undergoing a remodel? If so, it may be in your best interest to complete a cost segregation study to maximize the tax deductions available to the hospital.
What Is a Cost Segregation Study?
Tax laws generally allow depreciation of certain kinds of property at a rate faster than what is allowed for buildings. Whether building a new building, acquiring an existing facility, or renovating an old one, a cost segregation study identifies costs in a building project that may be categorized as personal property or land improvements, rather than as building costs. With a shorter depreciation period, current depreciation deductions are increased, thereby lowering your current tax liability and increasing your current tax savings.
How It Works
Costs that are considered personal property and land improvements are reallocated out of the building’s tax basis into more favorable asset classifications of land improvements and personal property, which are eligible for accelerated bonus depreciation1 for federal tax purposes. Since the hospital is able to benefit from larger depreciation deductions immediately, it can reduce the current tax liability, improve cash flow, and ultimately improve the bottom line. Generally, cost segregation studies are most beneficial for projects that have over $1 million in construction or acquisition costs. If your hospital has undergone a construction project of this magnitude or is considering completing one in the near future, please contact KSM’s veterinary consulting team to see if a cost segregation study could benefit you.
1 Current law allows for a 100% bonus depreciation deduction for assets placed in service in tax year 2022, but it is slated to phase out from 2023 to 2027 as follows:
- 80% for assets placed in service in 2023
- 60% for assets placed in service in 2024
- 40% for assets placed in service in 2025
- 20% for assets placed in service in 2026
- 0% for assets placed in service in 2027 and later years
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