|
If you own commercial real estate, you know you are entitled to depreciate that building. The traditional depreciation schedule allows you to depreciate your asset over a period of either 27.5 or 39 years. Cost segregation is a strategic tax tool which looks for all possible opportunities for accelerating depreciation. The process allows the assets to be re-classified and depreciated on a much faster 5,7 or 15 year schedule. So your current taxable income will be greatly reduced and your cash flow will increase. This could save you thousands of dollars.
There are a select number of firms with trained engineers that perform the analysis necessary to break a building into bite sized components that makes up this process. A typical accountant would not be the person to call to perform this detailed work. To determine whether or not a cost segregation study makes sense, you should conduct a cost benefit analysis to compare the cost of performing the study to the potential tax savings. Most firms that do studies will provide an estimate of the tax benefits and study costs to help you determine breakeven.
In most cases you should plan on holding the property for at least three years to ensure cost benefit, and the property should be valued at no less than $500,000. Keep in mind that performing a thorough cost segregation study is a detailed and complex job, you need to be careful when hiring a firm to conduct the study. A well-documented and thorough cost segregation analysis will:
-
Maximize tax savings by adjusting the timing of deductions
-
Create an audit trail to help resolve IRS inquiries
-
Take advantage of retroactive benefits. Manufacturers can capture immediate retroactive savings on property added since 1987. The rules have been amended so that you can now take the full amount of an adjustment in the year the cost segregation is completed
-
Provide significant opportunities to reduce real estate tax liabilities
- Under certain circumstances, permit manufacturers to qualify for a special 30 per cent bonus depreciation allowed by the Job Creation and Worker Assistance Act of 2002 or a 50 percent bonus depreciation allowed under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
How much does a study cost? The price of cost segregation analysis will vary depending on your specialist’s fees. During your initial consultation, request a price quote and a net present value estimate. Net present value is a calculation that shows the value of a cost segregation study over the remaining tax life of a property. The annual value is adjusted back to today’s dollars, allowing you to compare the total benefits of your analysis to its cost. Generally, the net present value you will earn after tax savings by utilizing a cost segregation study will be at least 10 times the cost of the study. If you want to talk with an expert on Cost Segregation, let us know and we will put you in touch.
Bruce Kaplan, Senior Broker, BruceK@PremierCommercialRealty.com
New Business in Lake in the Hills
Adult Day Club
| 
