If you own your building, you may be sitting on untapped tax savings
Let Hayley Capital and our team of specialists review your existing property to see how many depreciable items you have within your building that will allow you to save on your taxes and increase your cash flow. Order a FREE report today and uncover your savings!
Just purchased an existing building? The savings can start today!
No matter the age of the building, if you purchased the building within 15 years, our fully engineered study could help you reduce your taxes and add cash flow to your business when you need it most – now! Our experts can review your building’s potential – for FREE. Click here and get started.
Even New Commercial building owners can reap the benefits
Why wait 5, 10, 15, 39 years to gain the tax advantage of your new property when you can use a fully engineered study to reduce your tax and add cash flow to your business NOW! Our experts can review your building’s potential and deliver a full report that will have you saving on taxes today… when you need it most and this review is FREE!
Don’t own your building, but have over $200,000 in build out?
Put our fully engineered study to good use with your leasehold. There are many depreciable items within your building that will allow you to save on your taxes and increase your cash flow. Contact us for a FREE estimate of your benefit.
SEGREGATING THE BUILDING
Cost segregation, or allocating costs or values of a building’s components into appropriate classes of personal property to shorten their depreciation recovery period, can be applied to buildings used in a business that were recently constructed, purchased, expanded or remodeled by the taxpayer. In addition, cost segregation can be used for buildings that have been in service for some time, as well as some buildings that have been sold. For buildings already in service, depreciation deductions for prior years can be recomputed, and a one-time catch-up provision (a Sec. 481(a) adjustment) allows a current-period deduction for the difference between depreciation deducted to date and that which could have been deducted using cost segregation (Rev. Proc. 2002-9), instead of having to amend prior-year returns. The IRS has taken the position that a change in recovery period is a change in accounting method. Hence, to implement the catch-up provision, the taxpayer must complete and timely file Form 3115, Application for Change in Accounting Method. For buildings that have been sold in a prior tax period, the taxpayer must also be eligible to file an amended return for the tax year of the sale.
A cost-segregation study can be used for buildings being constructed or recently purchased, or buildings already in service. It is worth considering a cost-segregation study of any building that was placed in service after 1986. For buildings already in service, there is a catch-up provision that could make it very attractive to do a study. Basically, any amount that could have been deducted previously can be deducted in the current period. This can be a tremendous benefit if a building was placed into service between 2001 and 2003 because the personal property may also qualify for a 30- or 50-percent bonus depreciation deduction.
Change of Accounting Method (the Catch-Up Provision)
When a cost-segregation study is completed for a building that is already in service, it will result in finding depreciation deductions that could have been deducted over the time now lapsed. Accelerating these deductions is a very attractive reason to conduct a study. The difference between what was deducted and what could have been deducted is known as an IRC Section 481(a) adjustment. The good news about these adjustments is that, pursuant to Internal Revenue Service Ruling 2002-19, the whole difference is deductible in the year that the study is performed, provided that Form 3115 is filed for that year.
Form 3115 is an application for changing your method of accounting – in this case, a change in how depreciation is computed. Internal Revenue Service Ruling 2002-19 makes the application of change in accounting method for depreciation purposes an automatic election.
Other Benefits of Segregating Costs
There are many other advantages to a cost-segregation study in addition to the immediate tax savings and cash-flow increase. Two potential side benefits to cost-segregation studies are insurance cost savings and estate planning advantages.
By providing a cost-segregation report to your insurance underwriter, the insurance company can better understand and focus on its risk, and more accurately underwrite the insurance cost. These potential insurance cost savings result in more money in your pocket.
Using a cost-segregation study in the estate planning process can create the opportunity to accelerate the depreciation on the same property at its original cost and then again at its stepped-up basis.
A cost-segregation study provides significant benefits for most commercial real estate owners. Accelerating the depreciation will allow current tax savings to be maximized and cash flows to be significantly increased, translating into more cash in your pocket, which is something that all of us desire.