By Debbie Rodkin, Partner
How can a property owner receive tax benefits and increase cash flow?
Commercial real estate owners have long known that depreciation can create a unique tax strategy to increase the rate of return on their investment. To maximize such benefits, it starts with a Cost Segregation study completed by a trusted company with tax and engineering expertise working with the owner’s accounting team.
Cost Segregation is a valuable planning tool that accelerates depreciation, defers tax, and improves cash flow for commercial and residential rental properties of every type and size. This is a particularly good time to consider a Cost Segregation Study with the newly implemented 100% bonus depreciation provisions as part of the Tax Cuts and Jobs Act of 2017. This legislation is different from the past version because acquisitions are now eligible for 100% Bonus Depreciation, where previously bonus depreciation only applied to newly constructed buildings (and renovations).
Cost Segregation should be considered routine to all property owners to manage the real estate from a tax perspective. Not only will the study support accelerated depreciation by reclassifying some assets from 27.5 or 39-years to shorter 5, 7, and 15-years, but also write-offs of disposed assets.
What is it and what does it have to do with me?
Cost Segregation is the reclassification of assets to accelerate depreciation. Property owners (and tenants) who acquired, constructed, or renovated buildings in the past 20 years may benefit—with no need to amend tax returns. Filing IRS Form 3115, an automatic change of accounting, allows the property owner (or tenant) to take the catch-up depreciation in the year the change has been implemented. Any unused depreciation deductions can be carried forward. This strategy allows you to front load your deprecation at tax time, freeing up significant cash which may be reinvested into your building or business. You will simply expedite the time frame of your depreciation allowing your money to work for YOU!
What is my benefit?
The benefits of a Cost Segregation Study vary depending on the details of your property. Results are heavily based on the facts and circumstances surrounding a property. To maximize depreciation’s tax benefits, a building’s purchase price or construction cost must be properly segregated among structural components, personal property, and land improvements. Proper segregation allows each item to be depreciated over the correct tax life. The benefit is the ability to increase cash flow by maximizing depreciation deductions in a building’s early years. Another benefit is deferring income tax to a later date and receiving dollars today. A dollar today is more valuable than a dollar 30 years from now.
Contact the Bedford Team to get a preliminary analysis of your property today.
With offices nationwide, Bedford Cost Segregation, LLC is a national leader in Cost Segregation Services, Energy Consulting, and Research & Development Tax Credits. Tax advisors and their clients trust Bedford’s experienced in-house technical staff of engineers and tax specialists for high-quality, reliable reports produced in accordance with IRS guidelines. Learn more at www.bedfordteam.com. Contact your local office: Debbie Rodkin, Partner, firstname.lastname@example.org 404.643.9456 for a free estimate of benefits today. : Future articles will give more detail into the application and benefits of cost segregation for specific property types.