A large office building underwent a major renovation, with costs of the improvements and internal buildout totaling approximately $9.5 million. After incurring these significant costs, the building owners were seeking ways to offset expenses by reducing their tax burden. With our unique combination of tax, engineering, and commercial property expertise, the team at CRG reviewed the building owners’ project records and determined that they would benefit from a Cost Segregation study.
What is a Cost Segregation study?
The goal of a Cost Segregation study is to unlock accelerated depreciation deductions by simply reclassifying certain real property assets as tangible personal property. Typically, real property is depreciated over a period of 39 years, while personal property is depreciated over 5, 7, or 15 years. Therefore, by changing an asset’s classification from real to personal property, building owners can take advantage of shorter depreciation lives and claim more substantial and immediate depreciation deductions.
Cost Segregation studies examine the various assets within a commercial building—such as wall coverings, electrical and plumbing fixtures, floor coverings, and more—to identify those that may be reclassified as personal property. Any commercial buildings, including offices, retail centers, industrial facilities, and hotels, that were placed into service after December 31, 1986 may be eligible.
Cost Segregation studies may be performed at any time after a building has been purchased, built, or remodeled, though the optimal time is within the first year after the building has been placed into service in order to begin maximizing depreciation deductions as soon as possible. To ensure compliance with IRS regulations, studies should be performed by a qualified third party, such as the team at CRG.
After conducting a Cost Segregation study on the large office building, the experts at CRG determined that 14 percent of the building’s short-lived assets could be reclassified as tangible personal property, thereby yielding accelerated depreciation deductions for the owners. The result was approximately $1.3 million in tax savings.
If you own a commercial building, you may be eligible to minimize your tax burden and boost cash flow through Cost Segregation. Contact CRG today to schedule a consultation!