Because not all materials in a building age at the same rate, Cost Segregation allows property owners to increase current cash flow for qualifying commercial property through accelerated depreciation on certain portions of the property. An experienced construction-engineering approach in accordance with IRS preferred methodologies can provide first-year savings that are a multiple of professional services fees associated with the analysis. Eligible structures may include warehouses, apartments and assisted living developments, restaurants, office complexes and heavy manufacturing facilities to name a few.
Cost segregation is a viable means of increasing cash flow through accelerated depreciation of building costs. Effectively, an engineering-based cost segregation study allows building owners to write off their building (new and existing) in the shortest amount of time permissible under existing tax laws, thus minimizing their overall tax liability. A building is commonly depreciated over the 39 or 27.5-year life assigned to real property. Through an engineering- based cost segregation study components such as electrical, plumbing, mechanical, and finishes can be identified and reclassified into 5, 7, and 15-year property.
Qualifying commercial Properties
- New construction
- Purchase of existing property
- Renovations or expansions
- Leasehold improvements
- Existing property placed in service after January 1, 1988
- Real property stepped up through Estate
- Individuals who have purchased, constructed, or renovated any property (since January 1, 1988)
- Any individual or company currently paying taxes
- Buildings valued above $1,000,000 (excluding land)
- Long-term property holder (more than three years)
An appropriate review of past years’ returns can provide additional depreciation deductions in the current year. This can be done without amending prior returns.
Cost Segregation rules apply to commercial real estate purchases or improvements placed in-service during eligible period. A Cost Seg analysis can be performed on office buildings, hotels, factories, manufacturing sites, retail outlets and more.
It will vary based on whether the property is new construction or an acquisition. For new property, documentation may include a tax depreciation schedule, site survey, AIA payment application and as-built drawings for civil, architectural, structural, plumbing, HVAC and more. Acquired properties will require closing documents, an appraisal, current rent roll, land value allocation and a complete site survey. One of our specialists can discuss your particular situation to review required documents.