Cost Segregation

Reduce income taxes by taking the

IRS-accepted form of accelerated depreciation

on commercial and multifamily real estate.

Have you built or acquired real estate, but not yet taken advantage of accelerated depreciation, to reduce income taxes? If so, you could be wasting money on taxes that you could keep for yourself.

An engineering-based cost segregation study of your building will enable you to dramatically increase your depreciation expense in the short-term, immediately reducing your income taxes and increasing your after-tax cash flow.

Now you can have an engineering-based cost segregation study of your property performed, enabling you to subdivide your real property cost into the correct, IRS-approved long-term and short-term assets. This enables you to depreciate much of your building cost faster than the typical long-term depreciation periods that apply to the structural components of buildings.

Typically, 20% to 40% of a building’s total cost are considered by the IRS to be either personal property or land improvements. Assets of these types can be depreciated over 5 to 15 years instead of treating them as if they were structural components, which are depreciated over 27.5 to 29 years. A cost segregation study will identify those components and will assign individual costs to them, reconciled to the overall cost of the building. Without a study, you will not know the correct cost breakdown and will not be able to accelerate any depreciation expenses and obtain the tax savings available from cost segregation.

For properties built or acquired and placed in service after September 28, 2017, property owners can deduct the entire cost of their short-term assets in Year 1, as bonus depreciation. This tax benefit will be available until 2023, at which time the benefit will phase out over several years. So it makes sense to have a cost segregation study done now so you can take advantage of this benefit, while it lasts.

 

Buildings that have been owned for many years are also eligible for cost segregation. A “catch-up” depreciation deduction can be taken in the current tax year representing accelerated depreciation deductions that an owner missed in past years. This can be done by having a cost segregation study performed and applying the results by filing IRS Form 3115 No amendment of prior-year tax returns is necessary. The catch-up depreciation expense can result in a sizable one-time depreciation deduction and tax savings.

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