Transcript CommercialRelief

GLOBAL Commercial Solutions
Cost Segregation Overview
Cost Segregation
What Is It?
How Does It Work?
What’s Your Benefit?
What is Cost Segregation?
Cost Segregation Is:
The IRS approved method for accelerating building
depreciation for Commercial and Residential Rental
properties. It is a detailed process which includes
identifying the building components that should be
properly classified as tangible personal property or
land improvements, rather than real property that is
depreciated over 39 years (or 27.5 for Residential
Rental).
The US Treasury Department States:
“Cost Segregation is a lucrative tax strategy that
should be used in almost every major
purchase of Commercial Real Estate.”
Wall Street Journal – June‚2003
Cost Segregation Defined:
• A cost segregation study is an in-depth
analysis of the cost incurred to build, acquire
or renovate a real estate holding.
• The primary goal is to identify all
construction related costs that qualify for
accelerated income tax depreciation.
• A true engineering based cost segregation
study will identify and assign costs to all
building components including those in the
39 year depreciation category.
Why Use Cost Segregation?
• Taxes are one of the largest expenses for commercial
property owners.
• Significant federal income tax benefits can be derived
from utilizing shorter recovery periods.
• Engineering-based cost segregation studies allow
commercial real estate owners to take what would
otherwise be classified as 1250 property for
depreciation purposes and reclassify it as more
rapidly depreciating 1245 property.
• This reclassification results in substantial cash flow
benefits in both current and future years through
substantially shorter depreciable tax lives and
accelerated depreciation methods.
Standard Depreciation
• Traditionally, a building’s actual cost is divided
between land and building.
For example:
– 20% to Land (which is Non
Depreciable) and
– 80% to Building
• The 80% allocated to the building is then
typically depreciated using 39 year straight
line depreciation.
Accelerated Depreciation
The IRS Uses Three Primary Asset Classes:
• Personal Property (1245) – Eligible for 5 or 7 year
depreciation using double declining balance method
(200%DB). Includes items such as carpeting, certain
fixtures, equipment hookups, computer cabling and
raised floors.
• Land Improvements - Eligible for 15 year depreciation
using 150% declining balance. Includes items such as
sidewalks, fences, site utilities, landscaping and a
portion of excavation.
• Real Property (1250) - Structural components that
relate to overall structure of a building. Includes parts of
a building such as walls, ceilings, HVAC, roofs, floors and
permanent coverings.
Typically, only 3% of a buildings
cost is classified to reap the
greatest tax benefit.
Assets such as furniture, fixtures, and equipment
have properly been classified and claimed as
“personal property”.
The remainder of the building is assigned a
depreciable life of 39 years.
(27.5 Years for residential rental property)
Cost Segregation Breakdown
After
Before
5 Years
Cost Seg
39 years*
7 Years
Class
S1245
Personal Property
200%DB
Double Declining
Balance Method
Segregate
15 years
Land Improvements
150% DB
39 years*
S1250 Real Property
Straight Line
* 39 Years for Commercial Property and/or
27.5 Years for Residential Rental Property
Types of Components We Segregate
and Reclassify In Our Studies:
















Communication Systems
Computer Data / Power
Data Outlets
Electrical Outlets
Distribution Wiring
Distribution Panels
High Voltage Switchgear
Emergency Power
Supply / Exhaust Systems
Removable HVAC
Systems
Specialized Fire
Protection
Specialized Air Filtration
Humidity / Temp. Control
Security Access & Monitoring Systems
Audio / Visual Systems
Communications
 Conduit / Wiring to Special
Systems
 Demountable Power
Systems
 Specialty Gas /
Compressed Air Systems
 Millwork
 Floor Coverings
 Window Treatments
 Wall Coverings
 Demountable Walls
 Decorative Lighting
 Signage
 Sidewalk & Curbing
 Parking Lots & Curbing
 Site Utilities
 Sewer & Drainage
 Landscaping
 Site Lighting
“Our engineers look beyond the obvious
items and evaluate every single key
component associated with a property.”
Qualifications:
Any for-profit entity that:
• Owns a commercial or residential rental
property with a basis of $1,000,000 or
higher.
• Made leasehold improvements totaling
$500,000 or higher.
• Pays Federal Income Tax
•
Properties That Qualify
• Existing property acquired after 1986.
• New Construction or Future
Construction.
• Existing buildings undergoing
renovations or expansion.
• Leasehold Improvements, both past
and future.
• Commercial Property about to be
acquired.
Service Highlights
We Provide Free Property Evaluations
•
We provide a free Cost-Benefit Analysis for
each and every property.
•
In the analysis we will provide our flat fee
to complete the study along with a
conservative estimate of benefits.
•
This provides the owner the ability to make
an educated decision whether or not to go
forward with the study based upon the
anticipated return on investment.
Service Highlights
Our Studies Are Different
• Our studies are conducted using a Unique
Detailed Engineering Approach. Our
Engineers visit the site and assign both a
depreciable life and a project cost to every
asset in a property. All short life items, as
well as all 39 year assets are accounted for.
Our study allows the property owner to
realize the greatest tax benefit from a front
loaded depreciation schedule while keeping
within all guidelines required by the IRS.
Service Highlights
Retirement of Assets
 Most providers of cost segregation do not provide
the detail necessary to retire long life s1250 – “Real
Property”. This often results in a property having
“Ghost” assets on the depreciation schedule.
 Our studies allow the property owner to write off
long life assets in the years following the study.
– For example: If a roof needs to be replaced ten years
after the property is placed in service, the owner can
write off the remaining depreciable balance of that
roof all in one year.
This can amount to hundreds of thousands of dollars
in tax benefits.
Service Highlights
We Will Support Our Findings
 Our comprehensive engineering studies
maximize the benefit for our clients and
contain all of the supporting documentation
necessary to support our findings. Our final
reports stand on their own.
 In the event of an IRS Audit and/or if any
questions or raised, we will defend our
findings at no additional charge.
Who would you rather pay?
OR
IRS
Yourself
Why provide the Federal Government with an
Interest Free Loan for the remaining 39 years
of your buildings’ depreciable life?
Contact Us Today
for your Free Cost-Benefit Analysis!