Commercial Property Benefit
What are we talking about? Cost segregation, which is an engineering-based tax strategy approved by the IRS in 1997 to reclassify specific real property assets that usually are depreciated over a 27.5- or 39-year period into tangible personal property that can be written off over a much shorter period of time. A property owner is able to revise past-period depreciation write-offs to get refunds of taxes paid and/or reduce taxes in the near term. This translates into immediate cash flow. As with all accelerated depreciation schedules, you have to catch it up in the future, but given the time value of money, there can be a tremendous benefit to current cash flow. Think of it as a no-interest loan from the IRS. In addition, there can often be a direct reduction in property tax liability.
What does it take to qualify? You must own a commercial real estate property with a purchase value, excluding land, of at least $1,000,000 that was purchased within the past 12 years and plan on holding it for at least two more years. In addition, you must have paid federal income taxes within the past four years or have a current tax liability in order to most effectively utilize the credit.
How does it work? Our engineering consultants with Core Solutions Group will provide, for no upfront cost, a feasibility report to estimate the cash flow and Net Present Value benefits. If the benefit is sufficient, we can proceed with a full Cost Segregation Study. In a thorough and comprehensive process, we will evaluate all relevant information, interview related parties and present the findings in a well-documented report. Your internal and external accounting personnel will be included in the process from start to finish.
How much does it cost? We will complete the study for a fee not to exceed 10% of the end benefit. How many other investments offer that kind of return?
What does the IRS have to say? Over 300 rulings, letters and memoranda have provided documentation and significant case law for the support of Cost Segregation. The IRS provides different methods of completing a cost segregation study, but the greatest potential benefit comes from using independent specialized experts that utilize engineering and accounting analyses to provide the most accurate information. An amended tax return is not required. A simple form can be filed with the IRS to receive the benefit.
Can’t my CPA do it? Maybe, but the greatest benefit is gained from the use of a detailed engineering approach. Your own professionals may not be up to date with the most recent IRS rulings, which our staff is. And remember, our fees will not exceed 10% of the net tax benefit. If you engage inexperienced professionals, you will incur fees without knowing what the end benefit would be. We will provide a no-cost feasibility study to tell you what the estimated benefit will be. Call for more information or to set up an appointment.
