SUBSTANTIAL TAX ADVANTAGES FOR COMMERCIAL REAL ESTATE OWNERS

Cost segregation employs a multi-disciplined methodology.  It is an engineering/accounting-based study that identifies the more rapidly depreciable, tangible personal property (section 1245) of a building and segregates them into their appropriate depreciation brackets (i.e. 5, 7, or 15 years).  Section 1245 assets are depreciated much more rapidly than the remaining assets of the building (section 1250 property) - which is usually over a span of 27.5 to 39 years - thus creating the desired deferred tax benefits.  Typically, the average cost segregation study identifies 25% to 30% of the property’s basis that is eligible for accelerated depreciation.  Although it is best to implement cost segregation as soon as the property is placed in service, all is not lost if the property has been in service for several years.  The IRS allows for the taxpayer to perform, as part of the cost segregation process, a “look-back” study to determine what depreciation was missed by not implementing cost segregation when the property was originally placed in service.  This difference between what was depreciated and what should have been is allowed as a one-time catch-up adjustment on the taxpayer’s current federal income tax return.

read entire article as published in the Dallas Business Journal