COST SEGREGATION For Tempe Commercial Real Estate
What is Cost Segregation: Cost segregation for Tempe Commercial Real Estate is an IRS approved tax strategy for commercial property owners to shorten the depreciation on their buildings for income tax purposes. It is a combination of tax law and engineering principles which reduces current income tax obligations.
The U.S. Treasury Department States that “Cost Segregation is a Lucrative Tax strategy that should be used in almost every major purchase of ‘Tempe’ commercial real estate.” Wall Street Journal June 2003. Substantial tax and cash flow savings can be achieved by taxpayers who properly classify their construction or acquisition costs between real and personal property.
What is a Cost Segregation Study: A cost segregation study (“CSS”) is an engineering-based study of all costs associated with the acquisition or construction of a building. The purpose of this study is to classify these costs as either real or personal property, with the personal property additions being depreciated on an accelerated basis. Normally, these costs are assigned a 39-year depreciable life for tax purposes. However, through a cost segregation study, some of these costs may qualify for a 5, 7 or 15-year depreciable life, resulting in a savings of up to 22 cents on every dollar. Examples of assets that have qualified for accelerated depreciation include land improvements, parking lots, fencing, outdoor lighting, landscaping, wall and floor coverings, intercom and security systems, specialized heating, ventilation and cooling systems related to specific business requirements, storage and shelving, movable wall partitions, and many others building assets.
Who Qualifies: Almost any Tempe commercial real estate properties purchased, built, renovated, or acquired after 1986; tenant improvements are over $100,000; the owner is a “for profit” entity with a taxable income; building cost basis of over $250,000; and properties that will be held for at least 3-5 years.
Benefits of Cost Segregation: Cost segregation allows taxpayers to increase their depreciation deductions over normal methods by classifying personal property away from long-lived building periods and into shorter recovery periods. This gives owners increased options and flexibility when deciding when and where to allocate capital. The increased cash flows can be taken from the income stream to finance separate projects, strengthen reserves in existing properties, enable owners to be more competitive by allowing for more tenant/leasehold improvements, or augment debt service payments. The 2008 additional bonus depreciation provisions significantly enhance the benefits of cost-segregation studies, allowing taxpayers to maximize their depreciation deductions, recognize lower tax burdens, and increase after-tax cash flows.
Menlo Group Commercial Real Estate