Cost Segregation Analysis

General Real Estate Investing
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A majority of commercial property owners are leaving hundreds of thousands of dollars in tax benefits on the table.

For those who own commercial property, there is a rather new tax strategy called Cost Segregation Analysis or Building Component Analysis. The IRS requires an engineering approach to determine the benefits for a cost segregation study. You probably have not heard of this because most CPA firms do not have an engineering department or understand the complexities of breaking down a buildings components within a commercial property. Fortune 500 companies have used this analysis for years, but because of recent court case rulings the small commercial property investor can take advantage of these new court cases. In short, most commercial property owners depreciate their building using the straight line method of 39 years. A building component analysis re-classifies the components in the building to shorter depreciation lives of 5, 7 & 15 years, which accelerates the depreciation and increases cash flow for other products.

Another benefit for owners of commercial property is that if you have owned the building for, as an example, 7 years, the IRS allows you to catch up on your depreciation from those past 7 years and apply all of that catch up in the year you change your accounting method. The majority of commercial property owners can see a minimum of hundreds of thousands of dollars in tax benefits by using this analysis.

If you have any questions regarding this new tax strategy, please do not hesitate to ask questions and I will do my best to answer them. If you are an active investor or own a commercial property, you can definitely benefit from a cost segregation analysis.

Rudy
Commercial Property Consultants

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Hello

Would you know that court cases off hand?

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What impact does this have when/if the property is sold?

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To Topnotchthriller:

Hospital Corporation of America vs Commissioner (1997)

Brookshire Brothers Holding, Inc & Subsidiance vs. Commissioner (2003)

These are a few of the most recent court cases on behalf of cost segregation analysis.

I hope this helps you in your due dilligence of cost segregation.

Please do not hesistate to call me if you have any other questions.

Rudy Perez
Commrecial Property Consultants

5

Mike Hearne:

What impact does this have when/if the property is sold?

There will be an issue of recapture once the property is sold. However, because of the time value of money, a dollar today is worth more than a dollar tomorrow, (A dollar in 1975 has the same spending power of $3.75 today) most commercial property owners would rather take advantage of what their money can do for them today rather than 39 years from now, straight line depreciation method.

We typically provide a commercial property owner with hundreds of thousands of dollars in tax benefits by doing a cost segregation analysis. I also would like to mention that if you have owned your property for more than one year, (i.e. 7 years), the IRS allows you to catch up on your depreciation from what you missed out on for the 7 years you owned it by not having a cost segregation analysis done.

I hope this answers your question. Please do not hesistate to contact me.

Rudy Perez
Commercial Property Consultants