It might surprise certain property owners that they have tax savings opportunities in plain sight—though sometimes the opportunity can literally be underground. Golf courses, auto dealerships and service stations, multi-family housing, manufacturing sites and more can offer tax benefits through cost segregation.
Cost segregation is an accounting method commonly associated with commercial property to separate out certain assets of a building from the rest for faster depreciation and tax savings. By reclassifying components of commercial property, assets can be depreciated on a five-, seven- or even 15-year schedule rather than the traditional 27.5- or 39-year real property depreciation schedule. Benefits can include a significant increase in cash flow and reduced current tax liability.
At first glance, all you notice is acres of greens, sand, and dirt. On the surface, there may not be an apparent asset to reclassify. However, when you begin to consider the clubhouse, cart path, and sprinkler and drainage systems, you can begin to spot opportunities to depreciate certain assets at an accelerated speed.
Auto Services/Car Dealerships
The footprint of an oil change location is small, but before you write it off, consider what lurks beneath. While you’re getting an oil change or repair done, there are air, gas and oil lines below to service your car. These are costs that can be segregated from the building structure Many dealers have beautiful showrooms, offices, and customer waiting areas, not to mention large parking lots. All of these are components that may qualify for quicker depreciation.
The Dallas-Ft. Worth metroplex is among the nation’s leaders when it comes to multi-family apartments. These apartments have easily identifiable assets in the form of leasing offices, pools, and state-of-the-art fitness centers. Within the units, the carpentry, electrical, and mill-work are all considered in a cost segregation study. When Goldin Peiser & Peiser conducts a study, we evaluate each type of unit, extrapolate our findings and multiply them over the number of similar units to determine the assets that we can move into faster depreciation.
Cost segregation is particularly attractive to manufacturers given the capital- and facility-intensive nature of their business. Yet, there are far more opportunities for faster depreciation than first meet the eye. First, considering the heavy weight of the equipment they must support, extra layers of concrete in the foundation represent costs that can qualify for faster depreciation. For example, one of our clients stores large rolls of aluminum on large pallets. In order for the foundation to bear this extra weight, the client had to reinforce the foundation beyond the norm. This is a perfect example of when a cost segregation study would benefit the client.
Other opportunities for cost segregation include the air, gas, oil and fluid lines that are essential to everyday work at the facility, as well as the electrical wiring and distribution. If your facility has special exhaust ventilation systems, HVAC units, special climate controlled environments or any room with specialty equipment, you will want a cost segregation study.
These examples, along with daycare centers, for-profit schools, airfields, medical buildings and much more, represent the great potential for cost savings through cost segregation studies. These studies offer one of your best tax strategies to defer taxes, improve cash flow for capital expenditures and relieve your overall tax burden.
To learn more about cost segregation services at Goldin, Peiser & Peiser, contact Erick Cutler, CPA, at 214-635-2541.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.