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What is Cost Segregation?
The Internal Revenue Service has stated that when the acquisition of real property is supported by proper supporting documentation (i.e., a specialized cost segregation study prepared by a qualified engineer/appraiser), certain portions of a building and surrounding property can be depreciated over a shorter time than the building itself.
The property owner receives the ability to expense these assets over 5, 7 or 15 year periods, based upon the asset class. These lives are far shorter than the 27 ½ or 39 year lives currently applicable to the building itself and can provide accelerated tax deductions to the property owners. (For every $1 Million of reclassified cost, the net present value after tax benefit can exceed $200,000.00)
This benefit applies primarily to real property acquired after 1986 and must be supported by proper documentation.
A partial list of assets that can potentially be re-classified for residential property includes:
15-Year Property
- Site utilities / drainage
- Parking paving
- Sidewalks and curbing
- Exterior lighting
- Signage and fencing
- Swimming pools. tennis courts, playgrounds, basketball courts
7-Year Property
- Office / clubhouse furnishings
- Indoor sport courts
- Fire extinguishers / emergency lighting
- Alarm systems
5-Year Property
- Carpeting / vinyl tile
- Appliances
- Smoke detectors
- Cabinetry / countertops
- Window treatments
A partial list of assets that can potentially be re-classified for commercial property includes:
15-Year Property
- Site preparation
- Site utilities / drainage
- Parking paving
- Sidewalks and curbing
- Exterior lighting
- Fencing
7-Year Property
- Carpeting / vinyl flooring
- Wallpaper
- Pass-through and observational windows
- Decorative millwork
- Dock equipment
Seven-year property includes property with a class life of 10 years or more but less than 16 years. Fifteen-year property includes property with a class life of 20 years or more but less than 25 years.
Who can benefit from Cost Segregation?
In order to determine if a Cost Segregation Study is appropriate for you, review the following bullet points;
- Purchased or renovated the property in the past 12 years?
- Plan on holding the property for the next few years?
- Cost of the building, less the land exceeds $1M?
- Is your net income currently taxed?
A Cost Segregation Study is a valuable service if you answered yes to any of the questions above.
Contact: For further information contact:
Brad Fountain: bfountain@connorsolutions.com
Direct: 443.322.1237
Mobile: 443.465.4644
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