Commercial Property Owners often overpay the IRS. Find out if you are one of them.
The IRS allows Commercial and Investment Property owners to reclassify non-structural components of their building as personal property.
You can depreciate these assets over five years rather than 39.5 years (or 29.5 for investment property). These components sometimes total over 30% of the cost of your building. Higher depreciation expense means lower income taxes without the corresponding cash expense.
How much can I save?
If you have never had an engineering based Cost Segregation Study done on your building, you could recognize a first year tax savings of over $60,000 for every $1 million invested in your building. You can even catch up with prior years’ depreciation expense without amending returns.
How do I know if this applies to me?
Have a look at the depreciation schedule for your building or ask your accountant. If more than 70% of the cost of your building including improvements is being depreciated over 39.5 years, you could be paying more in income taxes than you need to. An expert in Cost Segregation Studies can determine within minutes whether you could benefit from an engineering based study of your building.
What documentation does the IRS need for me to claim the credit?
The best documentation is an engineering based study which itemizes in detail the components being reclassified. These studies are normally conducted by engineering firms which specialize in Cost Segregation Studies.
How much does it cost to have a study done?
Hourly costs normally apply and a good Cost Segregation company will provide a proposal detailing the costs and benefits before you incur any costs. Some companies will cap their fees at a small percentage of the tax benefit.
What if the IRS Audits my tax return?
The IRS fully sanctions asset reclassification and is unlikely to audit the results. A good Cost Segregation firm will provide unlimited audit defense at no additional charge if any aspect of the documentation is questioned by the IRS.
Why hasn’t my accountant recommended this strategy?
Accountants may be reluctant to suggest this strategy to realize a tax savings which represents is a timing difference in terms of when you pay your taxes. The $60,000 you save this year will eventually be paid to the IRS over what remains of the original 39.5 years. A good Cost Segregation firm will work with your accountant to be sure you can fully utilize the tax benefit before undertaking the study.
Should I get a second opinion?
Most Cost Segregation firms will provide a free analysis of your depreciation schedule and provide an estimate of potential savings and costs. For a FREE evaluation of your depreciation schedule, click HERE.
What if I already filed my income taxes for 2013?
It’s up to you...have your accountant amend the return or take the credit in 2014 and begin immediately utilizing the benefit by reducing your estimated tax payments.
What type of Commercial Property can benefit?
Nearly any commercial property qualifies...retail stores, hotels, car dealerships, manufacturing facilities, apartment buildings, office buildings and medical offices to name a few. Even if you don’t own your building but have invested in substantial leasehold improvements you may benefit from a study. See case studies below: