4A — March 29 - April 11, 2019 — M id A tlantic
Real Estate Journal
www.marejournal.com
M id A tlantic R eal E state J ournal
onventional wisdom has generally been that cost segregation By Bruce Johnson, MBA, CEM, Capstan Tax Strategies Good things come in small packages: Tax reform increases the utility of cost segregation on smaller properties C the TCJA-effect, which almost triples the additional first year cash flow: might make excellent candi- dates for a study in the post- TCJA era. on your investment. For example, consider two three-family rental homes
(TCJA) is changing the rules, and it’s time to reevaluate con- ventional wisdom. Under the PATHAct, Bonus depreciation was fixed at 50%, and only new assets were eligible for Bonus. The TCJA has boosted Bonus depreciation to 100% for four full years. Furthermore, under the TCJA acquisitions are also eligible for Bonus treatment. Qualifying assets no longer have to be new to be Bonus- eligible; they just have to be “new to you,” and as such it’s worth taking a closer look at smaller basis properties. Properties that wouldn’t have warranted a study in the past
studies are only worth performing on proper - ties with a m i n i m u m depreciable basis of $1M. Most people figured that the savings
More and more taxpayers are commissioning studies on acquired properties, smaller properties, and 1031 exchange properties with relatively small step-ups in basis. It’s well worth reassessing the fitness of these properties in light of the TCJA, especially considering that the price of the study itself is com- mensurate with the size and complexity of the property. Smaller properties generally have lower study costs, mak- ing for an even better return
Pre-TCJA
Post-TCJA
Additional 1st Year Cash Flow $17,679
$49,512 $35,643
10-Year NPV
$27,239
on the same block. The total basis for both properties is $750K. Engineers were able to move 13% of qualified assets to 5-year class life and 5% to 15-year land improvements. With a basis of $750K, a proj- ect like this probably wouldn’t have been considered a viable candidate for cost segregation in the past. But take a look at
If you or your client owns smaller-basis real estate, it might be time to consider cost segregation as a viable tax strategy. Keep in mind that the value of cost segregation extends well past accelerated depreciation. Cost segregation provides the meticulous data required to support a myriad of tax strategies that confer benefits throughout the real estate life cycle. There’s never been a better time to perform a cost segregation study, and it’s well worth consulting with a trusted professional to make the most of your real estate – whatever size it might be. Bruce Johnson, MBA, CEM is a co-founder and partner at Capstan Tax Strategies. Johnson works closely with commercial real estate owners and ac- counting firms to provide practical, creative, and customized engineering- based tax solutions. Transwestern Commercial Svcs. names Ford pres., East Region HOUSTON, TX — Tran- swestern announced Bruce Ford has been named presi- sumes oversight of operational excellence, client service deliv- ery, and business development initiatives for the commercial real estate services business in offices throughout Florida, Georgia, Tennessee, Virginia, Maryland, the District of Co- lumbia, Massachusetts, New Jersey and New York. This new position is part of the company’s transformation to a broader, three-region approach to commercial services, which is designed to inspire high performance, capitalize on synergies and enhance client connectivity. Bruce Ford dent of Tran- s w e s t e r n Commercial Services’ East Region. Ford, who pr ev i - ously served as president of the South- east, now as-
Bruce Johnson
accrued on a smaller study wouldn’t even cover the cost of the study itself. Hard pass. Not so fast. The passing of the Tax Cuts and Jobs Act
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