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Five Essential Cost Segregation Updates for Tax Year 2024

Published
Jan 16, 2025
By
Avi Jacob
Terri Johnson
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As the EisnerAmper team prepares for tax season, we thought it would be helpful to highlight five cost segregation must-knows. 

With a new administration taking office, there may be legislative changes on deck.  For the moment, we can only work with what we know.   

As of this writing, here are the crucial points to consider for TY 2024:

1. Bonus Depreciation Rates are at 60% and Falling 

Taxpayers are fortunate enough to be enjoying bonus rates under the TCJA, which took effect in 2018. This incentive has been a tremendous source of benefit and boosted the utility of the cost segregation study. 

However, rates have dropped to 60% for TY 2024 and will drop 20% annually through 2026. It’s important to note that cost seg studies will continue to bring benefits at any bonus rate. Still, when possible, we encourage clients to place properties in service before the end of the year to capture the higher rate of depreciation.

2. Section 179 Federal Expensing Limits Increase Again for TY 2024: 

  • Overall expensing limitation $1.22M (up from $1.16M in TY 2023) 
  • Phase-out threshold $3.05M (up from $2.8M in TY 2023) 

In contrast to bonus depreciation, Section 179 expensing continues to permit the immediate expense of 100% of an eligible asset cost. Before bonus rates began to decline, both incentives were essentially equivalent. With bonus at 60% and dropping, Section 179 expensing may play a much larger role in tax planning moving forward. 

Caveats: Section 179 expensing can only be taken on a trade or business, so it won’t apply to every real estate situation. Plus, the immediate benefit of Section 179 expensing is limited to taxable income and cannot be used to create losses.

3. TPRs Create Significant Write-Offs in Renovation Scenarios 

The Tangible Property Regulations (TPRs) have not changed lately, with attention focused on newer legislation. However, with the declining rates of bonus depreciation, the TPRs are becoming more relevant and work very well in tandem with other tax strategies. 

In addition to guiding taxpayers through expense and capitalization decisions, the TPRs permit the immediate write-off of the remaining depreciable basis of a retired asset. This Partial Disposition Election (PAD) is a great long-term tax shield; however, it must be taken in the year in which the retired asset was taken out of service.

4. Energy Incentives Make Easy and Profitable Cost Segregation “Add-Ons” 

The asset identification and quantification performed in a cost segregation study can tee taxpayers up for additional Credits.    

  • The EV Charging Station Credit incentivizes the installation of EV chargers, conferring up to a 30% decrease in tax liability.  The incentive cap of $100,000 was recently changed from “per location” to “per item,” meaning taxpayers can claim multiple items at the same location.   

To claim these Credits, a taxpayer must have documentation that quantifies and assigns costs to all relevant assets (solar panels, inverters, wiring, EV chargers, pedestals, etc.) A cost segregation study is the most defensible way to obtain this information, and claiming these Credits is quite straightforward once a cost segregation study has been performed. 

5. 1031 Exchanges and 754 Step-Ups have Inherent Cost Segregation Potential 

The 754 step-up is notoriously complicated, and it’s easy to overlook the inherent cost seg potential while dealing with all the moving parts. However, it’s important to remember that the new basis and service date seen in a step-up may create an excellent cost seg opportunity. 

Similarly, changes in the TCJA have created a climate in which 1031 Exchanges and Cost Segregation are often employed simultaneously. Cost Segregation may, in fact, offset the potential tax liability generated by excluding personal property from a 1031 exchange. 

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Avi Jacob

Avi Jacob is a Compliance Tax Manager in the Real Estate Services Group.


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