Commercial property owners should consider a cost segregation study.
Have you heard of a cost segregation study? Surprisingly, most commercial property owners haven’t. This IRS approved tax strategy allows property owners to increase cash flow and decrease tax liability by frontloading depreciation deductions in the early years of buildings ownership. The process identifies, separates and reclassifies qualified assets in your building from 39-year or 27.5-year class lives to much shorter 5, 7, and 15-year class lives. These studies have the potential to substantially increase your cash flow in the early years of property ownership by deferring your tax liability. The benefits are two-fold. First of all, you capitalize on the time value of your money… a deduction now is worth more than a deduction in the future. Secondly, the increased cash flow comes at a time when investors typically need it the most: early in the property holding period, when investors often have the most debt on the property and have significant cash flow going out in principal and interest payments.
Most CPA’s aren’t qualified to perform cost segregation studies. These efforts require specialized firms that have a combination of accounting, tax law and engineering expertise to assure that your results comply with IRS rules. These specialists should work closely with your tax advisors to make sure you are getting the maximum benefits out of the study.
We’ve used cost segregation studies on many of our own properties and continue to be amazed with the tax benefits. River Valley Commercial is ready to assist in screening and vetting cost segregation vendors to make sure you enjoy yet another great tax benefit of owning commercial real estate.