Cost Segregation

What is Cost Segregation and how can it work for me?

Many Commercial Real Estate Investors are not always aware of Cost Segregation and it’s benefits. There is and has been a United States tax law for cost segregation. It is the procedure for identifying personal property assets that are grouped with real property assets, and then separating the personal assets for tax reporting purposes. The cost segregation study will segregate the costs of commercial real estate into four basic categories: personal property, land improvements, the building, and your land.

Commercial Property Owners can go for a cost segregation study, in which certain commercial building costs that were classified with a 39-year depreciable life, can instead be classified as personal property or land improvements. That then gives a 5, 7, or 15-year rate of depreciation using these accelerated methods. The majority of multi-family properties are currently subject to a 27.5 year life. By obtaining a Cost Segregation study it may allow a Property Owner to depreciate a new or existing structure in the shortest amount of time permissible under our current United States tax laws.

The Land Improvements normally include the items that are located outside a Commercial Building that are affixed to the land and do not relate to the overall operation and maintenance of a building. Land improvements may include sidewalks, paving, fences and landscaping. In these cases reducing tax lives results in accelerated depreciation deductions, a reduced tax liability,and the benefit of an increased cash flow.

What are the benefits of a cost segregation study?

  • Investors can see an immediate improvement on their ROI and in cash flow
  • The deferral of Property Taxes
  • A basis for your fixed asset system
  • A reduction on your current Tax Liability

Also many Property Owners will be able to recapture their past years of depreciation deductions. This can happen without having to amend your prior tax returns. The effects of a cost segregation study can be extremely significant especially if you own multiple Commercial Properties.

Contact us to find out more.

O’Reilly Commercial Realty LLC
Patrick O’Reilly
Phone: (352) 237-2222