If your client owns a group of commercial buildings that has a combined cost basis of $1 million or more, you may have some good news in store for them.
As you’re preparing your clients’ tax returns, look out for these three types of transactions that generally present an opportunity to accelerate depreciation deductions to the tune of at least 10 times the cost of the cost segregation study:
- Purchase or construction of a building with a cost basis of $1 million or more. The cost-benefit calculation generally is most beneficial at the $1 million price point. However, in certain types of buildings with a high proportion of nonstructural components (such as hotels, restaurants, apartment buildings, retail establishments, and manufacturing facilities), a lower cost basis (such as $750,000) might also justify the cost of the study.
- Multiple buildings of the same type that, all together, add up to a cost basis of $1 million or more. When one entity or individual conducts cost segregation studies on multiple buildings of the same type (e.g., 2-3 quick-service restaurants), as long as those buildings are within the same geographic market, the client will see efficiencies of scale in conducting cost segregation on that group of properties.
- Tenant buildout with a cost basis of $500,000 or more. While new buildings tend to get all the attention, leasehold improvements are the unsung heroes of the cost segregation world. Because they are likely to involve fewer improvements to the building envelope or structural components, these construction projects likely are comprised of a higher percentage of Sec. 1245 property that qualifies for 5- and 7-year depreciation.
Need help uncovering transactions that qualify for cost segregation? Contact us to schedule a Deep Dive into your commercial real estate client base to identify those tax-minimization opportunities.