A guide to cost segregation depreciation for commercial property owners

Cost segregation studies can save commercial property owners tens or even hundreds of thousands on their next tax return, depending on the size and number of properties they own. However, many overlook this tax strategy because it’s either too complicated or too expensive. 

In this guide, we’ll help you demystify the commercial cost segregation process and fill you in on how you can make it more affordable and less complicated. 

How does cost segregation work for commercial property owners? 

For commercial properties, cost segregation involves four steps. Carefully working through these steps ensures that you are getting the most tax benefit available and doing so in a legitimate way. 

Despite what some cost segregation firms tell you, you don’t necessarily need to hire a team of engineers to complete these steps. However, due to the complexity of cost segregation studies on commercial properties, you should work with a CPA to ensure you are doing things the right way. 

Step 1: Determine the feasibility

The first step is to make sure that cost segregation makes sense for your property. Not all properties are a good fit for cost segregation, but many are.  

To determine the feasibility, you’ll first need to identify each of the components in your commercial property. Floors, roofs, electrical wiring, windows, sidewalks, plumbing, and every other part of your building counts. 

There are several items to look for within these components to determine their eligibility for cost segregation. One thing to look for is improvements. Original structures are usually not eligible for accelerated depreciation, but improved structures often are. 

Another factor to look for is whether or not the components are structural or not. Structural components usually depreciate at the normal speed, but non-structural components such as appliances, carpets, or fencing can depreciate faster. 

If you find that you have a good number of structural improvements or non-structural components, there is a good chance that a cost segregation study will yield a worthy ROI. 

Step 2: Information gathering

Now you will need to determine the value of your building and its component parts. This information can come from many different sources, including recent appraisals, inspections, or closing documents. 

You or your team can also use online tools like LoopNet, Google Earth Pro, or ReGrid to take building measurements and find publicly available information. If you want to get hands-on, you can take photos and measurements of building components on-site. 

Step 3: Analysis

This step is where you need to work closely with your CPA or our expert team of CPAs at Commercial Property Refund. Using the information from step two, your CPA or our team will identify exactly which of your property’s components can be depreciated over a shorter time, and which are eligible for 5, 7, or 15-year depreciation

Step 4: Complete A Report 

After the property has been thoroughly analyzed, your CPA (or our team) will provide a report that details exactly what components you can depreciate faster and how long each accelerated depreciation period is. 

This is an official report that you provide to your accountant and the IRS. You can use this report when filing your next tax return and start enjoying the benefits of accelerated depreciation by reducing your tax burden, if eligible. 

How can commercial cost segregation work faster and better? 

While you do need a CPA to provide an eligible cost segregation study report, you don’t need engineers to crunch the numbers for you. This is where we come in.

Many smaller commercial property owners view cost segregation studies as out of reach due to the high costs, which keeps this advanced tax strategy exclusive to large corporations. For example, a smaller property owner wouldn’t want to invest in a $10,000-$15,000 study for a tax benefit of $18,000—the ROI simply isn’t compelling enough. Also, the tax benefit isn’t guaranteed, so there’s a chance they lose money on the investment. 

At Commercial Property Refund, we’ve developed a proprietary way to deliver your report quicker than traditional methods. Additionally, it adheres to IRS guidelines while upholding the highest quality standards. With Commercial Property Refund, you can expect a 10-30x ROI.

How to start your commercial cost segregation study ASAP

You can rely on Commercial Property Refund to provide you with a cost segregation study well before tax season. Rather than put you on a waitlist for this popular service, we can provide an IRS-compliant study as quickly as possible. 

Interested in how much you’ll be able to save on your next tax return? Check out our commercial property refund calculator for your free savings estimate. 

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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