Businesses depreciate capital assets and buildings which is all part of standard accounting. I found this article on depreciation methods to be particularly helpful when trying to understanding the different methods of calculating accelerated depreciation. This is more from the perspective of capital assets for a business. The article looks at double declining depreciation method as well as the sum of the year’s digits methods.
Author: John Murphy (Page 2 of 2)
Husband of 34 years to my college sweetheart, Janet Murphy (@janetmurphydesign on Instagram). Together we have 6 wonderful children from ages 15-31 and 5 grandchildren. I've been a licensed REALTOR since 2003 and broker since 2007. I also am a cost segregation specialist helping building owners and real estate investors maximize their tax deductions, save thousands on their income taxes and increase their cash flow. If you're a building owner you probably haven't done a study...let's connect. There is no obligation. We can run an estimate for you and really every building should be evaluated if the basis is over $150,000. I can work all over the country and not just here in the Upstate. We relocated to Greenville, SC for the lifestyle, lower cost of living, amazing amenities in the area and the growth opportunity for business and real estate. We absolutely love it here!
All opinions are expressly my own and do not represent either eXp Realty LLC, Cost Segregation Services, Inc. or any other company, organization or group that I might be affiliated with.
This question comes up a lot. Normally the best time to do a study is right at the time of purchase or when it is placed in service. It will allow the owner to maximize the accelerated depreciation available to him/her. Having a cost segregation study done that includes the defining of the key building systems will prove helpful for building owners to stay in compliance with the Tangible Property Regulations that went in to effect in 2014. But the truth is an owner can do it almost at any point in time of their ownership. You will want to get an estimate and if you’ve owned the building for some time, we’ll need to review your depreciation schedule to see if there is any an opportunity for you to benefit from accelerated or catch up depreciation. Remember, most building owners see an income tax savings of between $30,000 – $70,000 per $1 million in building costs (basis).
If you end up waiting a year or more from the time you purchased the property or put it in to service, you will have to file an IRS form 3115. It’s a change of accounting form that gets used for a lot of purposes. It gets filed all the time so there’s no worry to think just because one of these needs to be filed that you’ll open yourself up for audit. We have not seen that to be the case. The form is a bit complicated. The firm I represent will produce a draft of the 3115 and calculate the negative 481a adustment for $750 and then the building owner’s CPA would sign off on it. If the CPA won’t sign off, then we will for another $500. Most CPAs like the fact that we take care of the 3115. This isn’t a huge expense but it does add to the overall cost of a study. Let’s say your study costs are $4-$5k. The 3115 is going to add about 15-20% to the overall cost. Again, not a big deal but you just need to be aware of this.
What if you can’t use all the accelerated depreciation in the year you have the study done? Well, you can carry the loss forward and put that to use unlil that loss is consumed. I have seen many times where owners don’t have to pay income taxes on their property income for 2, 3, 4+ years or more sometimes because of the accumulated accelerated depreciation that was generated from a cost segregation study. I cannot give tax advise. I’m just sharing what we’ve seen other building owners and investors do. Please consult with your tax advisor when considering doing a cost segregation study and whether or not you can benefit from it.
Want to talk about it? Reach out and I’m happy to have a discussion and can provide you with an estimate.
Welcome to my new site! My goal here is to provide education, insight and information about the complicated world of cost segregation. The fact of the matter is, while it is a very complex process for those who do the work to study the buildings, it does not need to be particularly complex for the building owners and investors considering having a study done on their building(s). There are plenty of nuances about this part of the tax code but that’s what I’m here for as well as the team of people I work with along with your CPA and/or tax advisor.
My experience is that it’s probably less than 2% of building owners have applied cost segregation to their buildings. 80-90% of the owners I speak with are not familiar even with the concept. The majority of commercial brokers I speak with have a bit more knowledge of cost segregation but not enough to truly see the value it might provide their clients. Most CPAs don’t seem to utilize cost segregation in part I think because they don’t have a trusted source to get the work done for their clients. My hope here is that with this site, I can reach tens of thousands of building owners, investors, commercial brokers and agents, CPAs and other tax professionals and help them get their questions answered…and get their much deserve tax savings!
Thanks for being here. I’ll try to keep the content fresh and current.