The benefits of a cost segregation study for commercial real estate

Depreciation is a fantastic tax benefit provided by the IRS. It allows you to reduce your tax burden every year on your commercial real estate, but how can you make the most of it? 

Doing a cost segregation study on your property involves breaking out each of the components within your property for accelerated depreciation periods. Instead of depreciating the entire building at the standard 39-year period, you’ll be able to depreciate individual components over 5, 7, or 15 years, depending on certain factors. 

In this blog post, we’ll break down the benefits of doing a cost segregation study on your commercial real estate and provide a free tool to help you get started. 

The benefits: How cost segregation for commercial real estate pays off

Aside from simply getting a large refund check come tax time, doing a cost segregation study offers multiple benefits for commercial property owners. Here are the main benefits that make it an appealing tax strategy:

Significant Tax Savings:

The main benefit of a cost segregation study is reducing your tax burden. By identifying and reclassifying assets for accelerated depreciation, you can lower your taxable income and see smaller payments or even bigger refund checks after tax season.

Improved Cash Flow:

By decreasing your tax liability with accelerated depreciation, you immediately increase your property’s cash flow. You can use your extra cash to reinvest in the business or something else. Or perhaps you can go on a longer vacation this year. It’s your money, spend it how you’d like.

Retroactive Savings:

If you’ve owned your property for several years but overlooked doing a cost segregation study until now, you can do a study and apply it to past years. This can generate a sizable tax refund and bring more capital to your business or cash in your pocket. 

Besides more cash and savings, there are other secondary benefits to doing a cost segregation study. With your study, you will get a detailed overview of your property’s assets. This can help you make decisions related to future improvements and asset management. It also helps you stay audit-ready, as you have a great deal of information on your property and how you’re depreciating assets. 

Lastly, if you do a cost segregation study with Commercial Property Refund, you’ll enjoy even more benefits, as we’ve devised a method of providing studies for one-fifth of the cost of traditional providers by using automation. This makes cost segregation affordable to more small businesses and smaller commercial property owners and provides a 10-30x ROI. 

One thing to note is that every property is unique, so the benefits will vary depending on a wide set of factors. If you do a cost segregation study with us, we’ll help you quickly determine those factors and ensure you get the maximum allowable benefit without wasting your time or money. 

Example: cost segregation benefits for commercial real estate

The best way to visualize how much you could save through a cost segregation study is to see an example. Let’s say we are depreciating a small strip mall that was purchased five years ago for $1,000,000. This property is in an area where the effective income tax rate is 35%. To keep it simple, we’ll say the cost segregation study identified $200,000 that can be depreciated over 15 years and another $200,000 that can be depreciated over 5 years. 

Let’s calculate how much a property owner could save with this theoretical cost segregation study. 

Small Strip Mall – Property value: $1,000,000

Keep in mind that this is just an example and real-life results will vary, but you can see the tax savings power that a cost segregation study provides by looking at this simplified example. 

If you’re interested in an estimate for your own property, you can check out our free commercial property refund savings calculator. It will take the basic parameters of your property, such as property type, size, and acquisition method, and then give you a general estimate based on the thousands of cost segregation studies we’ve done using our proprietary cost segregation software. 

To see your real savings, you will need to provide more detailed information, but we can get you a completed cost segregation study within just two to three weeks. 

Get your free cost segregation savings estimate now. 

About Author

Richard Bourgault

Graduating from Georgia Tech with a degree in Electrical Engineering, Richard has gained over a decade of expereince in Cost Segregation coupled with software UX.

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