100% Bonus Depreciation Cost Segregation

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Commercial RE Appraisal & Cost Segregation


email: david@myaacg.com

Cost Segregation Studies

New Tax Law - The Tax Cut and Jobs Act, 12/22/2017
Good News - 100% Bonus Depreciation for 20 years-life segregated property classification can be allowed for the property placed after September 27, 2017.   

Take a huge tax deduction by doing the Cost Segregation.

Under the alternative depreciation system, as modified by the Act, the recovery periods for nonresidential depreciable real property, residential depreciable real property and qualified improvements are 40 years, 30 years and 20 years, respectively.

The Act extends and modifies the additional first-year depreciation deduction for qualified depreciable personal property by increasing the 50% allowance to 100% for property placed in service after September 27, 2017, and before 2023. After 2022, the bonus depreciation percentage is phased-down to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025, and 20% for property placed in service in 2026. The bill removes the requirement in current law that the original use of qualified property must commence with the taxpayer. Thus, immediate expensing applies to purchases of used as well as new items.

What is Cost Segregation?
Something called cost segregation may help owners of commercial real estate save significantly on their federal income taxes. Cost Segregation is a tax planning tool that determines how quickly an owner should be depreciating the property on his income taxes — five years, seven years, 15 years, 27.5 years or 39 years. The Internal Revenue Service allows owners of commercial properties to accelerate depreciation on their real estate, which will result in reducing the property owner’s taxable income levels.  A cost segregation study is an in-depth analysis of the costs incurred to build, acquire or renovate a real estate holding. The primary goal of a cost segregation study is to identify all construction-related costs that qualify for accelerated income tax depreciation. Small or large, your business can save money with a cost segregation study, typically many times the amount you invest.

The Benefits of Cost Segregation (applicable to prior to 09/27/2017)

We perform a detailed analysis of your commercial property for the purpose of identifying all of the construction related expenses that can be depreciated over 5, 7 and 15 years. The result of our study is the accelerated depreciation of these deductions, reducing your tax liability and increasing your cash flow. 

By combining the expertise of our appraiser-consultant who are experienced in cost and construction estimating, tax codes and IRS documentation, we can get you:
  • Material reductions in your federal and state tax liabilities for the year of the study and the next decade - typically hundreds of thousands of dollars.
  • A more detailed breakdown of the many components that comprise your building which will make repair, remodeling and replacement of the same less costly and more beneficial to you.
  • Probable increase in capital gain income taxed at 25% on the sale of your building. For buildings you propose to construct, the study can actually reduce the cost per square foot.
  • Immediate increase in cash flow through accelerated depreciation deductions by reducing Federal and State income taxes.
  • Reduction in real estate property taxes. Property taxes are calculated as a percentage of the building costs. Personal property should be accurately removed from the cost of the structural components and should not be subject to property taxes.
  • Tools and information to correct misclassified assets and the opportunity to claim, “catch up” in the current year.
  • Benefits bank loan qualifications.
  • Reduction in insurance costs by identifying the components of the property that do not need to be insured.
  • Demolition & Rehabilitation. A cost segregation study will identify the components of a building, which can be classified as personal property versus real property for write-off versus capitalization prior to demolition & rehabilitation. This allows the property owners to write off these items opposed to capitalizing the assets. This can generate substantial tax benefits.
  • A bridge to shrink the gap between engineering, construction and accounting systems.

Reasons Benefits are often overlooked:

  • Commercial property owners are not aware of the magnitude or importance of the potential benefits.
  • All components of “real estate” are assumed to be “real property” for Federal tax purposes.
  • Complexity of the tax law requires familiarity with numerous IRC sections, regulations, revenue rulings and case law.
  • CPA’s and the property owner are unable to extract the necessary detail from contractor invoices and payment applications, or the property is purchased well after the building has been built and the necessary information is not available.

Qualifying Properties:

Hotel/Motel, Gas Station/ Car Wash, Industrial/ Warehouse Building, Apartment, Office Building, Grocery Store, Restaurant, Retail, Nursing Homes, Golf Course, Auto Related, Leased Tenant Improvements

Any commercial/investment real property placed into service since January 1st, 1987 may benefit from a Cost Segregation Study (CSS):

Critical timing is when the property was placed into service by the current owner / taxpayer, not when the building was originally constructed.
  • New construction, including renovation, remodeling, restoration, or expansion to an existing building
  • Property acquired via purchase
  • Property acquired via inheritance
  • Property which received step-up in basis
  • Major leasehold improvements

Certain types of buildings benefit from a CSS more than others. Those are the types of buildings that tend to contain:

  • More specialty plumbing, electrical, HVAC system, etc.
  • Higher amount and quality of personal property
  • Extensive land improvements

Range of average benefits

Property Type Basis Reallocation

Apartment Buildings 20 - 50%
Office Buildings 10 - 40%
Restaurants 10 - 40%
Hotels 15 - 40%
Light Manufacturing 15 - 40%
Heavy Manufacturing 25 - 70%
Grocery Stores 15 - 50%
Retail Facilities 15 - 40%
Warehouses 8 - 30%
Processing Plants 15 - 40%
R & D Facility 20 - 50%

classification from real property to land improvements and personal property:

Examples of Qualifying Properties:

» Airports
» Apartment Buildings
» Assisted Living Facilities
» Automobile Dealerships
» Bank Branches
» Casinos
» Cinemas
» Day Care Facilities
» Department Stores
» Distribution Centers
» Fitness Centers
» Food Processing Facilities
» Funeral Homes
» Gas Stations
» Golf Courses
» Grocery Stores
» Hospitals
» Hotels/Motels
» Industrial Facilities
» Laboratories
» Manufacturing Facilities
» Marinas
» Medical Centers
» Medical Facilities
» Mixed-Use Facilities
» Nursing Homes
» Office Buildings
» Parking Lots
» Pharmaceutical
» Physician Practices
» Public Utilities
» Research Facilities
» Retail Centers
» Resorts
» Restaurants
» Shopping Centers
» Sports Facilities
» Storage Facilitie
» Warehouses
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