Cost Segregation Studies for Commercial Properties
Cost Segregation is the practice of identifying assets and their costs and classifying those assets for federal tax purposes.
In a Cost Segregation Study, certain commercial building costs previously classified with a 39-year depreciable life, can instead be classified as personal property or land improvements, with a 5, 7, or 15-year rate of depreciation using accelerated methods. Residential buildings, including multi-family buildings are subject to a 27.5 year life. An “engineering-based” study allows a building owner to depreciate a new or existing structure in the shortest amount of time permissible under current tax laws.
The benefits of a Cost Segregation Study include:-
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-An immediate increase in cash flow
-A reduction in current tax liability
-The deferral of taxes
-The ability to reclaim “missed” depreciation deductions from prior years (without having to amend tax returns)
“Engineering-based” cost segregation enables commercial real estate owners to reallocate real property (under Code Sec. 1250) to personal property (under Code Sec. 1245). This results in a substantially shorter depreciable tax life and accelerated depreciation methods.
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What property types benefit most from accelerated depreciation with a Cost Segregation Study?
Many of the costs embedded in a new or existing building can be segregated into categories that also allow for more rapid — or accelerated — depreciation. A Cost Segregation Study is a tool used to maximize the tax benefits of owning a commercial property. Many items inside the building – furnishings, fixtures, flooring and the like – can be depreciated more quickly, over five to seven years; and the site improvement components can be depreciated over a 15-year period.
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Best suited for:-
Real estate construction valued at over $1 million
Building acquisitions or improvements
New buildings under construction
Existing buildings undergoing renovations or expansions
Best savings potential:
Office buildings
Shopping centers
Restaurants
Hotels
Warehouses and distribution centers
Manufacturing and industrial plants
Medical facilities
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