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Disadvantages of a Cost Segregation Study?

The process will entail some cost and time. A study could cost as much as $20,000 or more, depending on the location, age of the property, and whether the building is residential or nonresidential. The study could take a month or more to complete. If personal property is disposed of, there could be depreciation recapture income subject to ordinary rates as high as 35%, plus any state taxes, and possible unrecaptured section 1250 gain, taxed at 25%, again, in addition to state taxes. If a cost segregation study is too aggressive or contains erroneous information, the IRS could assess penalties on the additional tax due to a "substantial valuation overstatement".

It is always good policy to consult one's tax advisor as each situation is different. If you do your homework, the benefits of cost segregation can be substantial.


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