Maintaining a decisive tax strategy for your commercial real estate asset can be one of the most complex but valuable actions you can take as a property owner. Optimizing your asset’s value to better assess depreciation, and thus maximize tax savings, can seem arduous and many investors overlook the potential reward. For this reason, it is important to consider the value of a Cost Segregation Study.
Cost Segregation is the process of identifying the components of an asset that would likely depreciate over a shorter period than the property itself. For example, items considered to be “tangible personal property” like furniture, flooring, electrical appliances, and fixtures are all elements of a property that will depreciate more rapidly than the building itself. Similarly, exterior land improvements like landscaping, fencing, and road improvements could also have a shorter tax life.
In a recent article for National Real Estate Investor, Brian Lefever vice president of operations for Titan Engineering notes that “By allowing accelerated depreciation on certain assets, those assets can be written off more rapidly, thus lowering upfront tax liability.”
By shortening the tax lives of these elements, investors can better time their deductions over time. This in turn can help maximize tax savings, allowing for freed funds to put toward the asset or into other investment opportunities. In addition, with the implementation of the Tax Cuts and Jobs Act of 2017 bonus depreciations are being increased by between 50-100% on certain assets.
Read Brian Lefever’s full article HERE