Mid Atlantic Real Estate Journal — 2013 Forecast — January 11 - 24, 2013 — 11C
www.marejournal.com
2013 F orecast
By Ralph Anderson, CPA, Michael McCabe, The Green Group How a cost segregation study can pay for itself and save you in taxes
T
ypically owners of res- idential rental prop- erty depreciate the en-
Inaddition, certain land im- provements located outside of a building may be depreci-
• Swimming pools • Tennis courts • Playgrounds
items. Such costs include di- rect material and labor costs, as well as indirect costs such as architect and engineering fees and impact and permit fees. In the case of an exist- ing building where records are not readily available, val- uation experts may rely on standardized cost estimation manuals. However, it may be more expensive to perform a cost-segregation study on old construction because of the increased difficulty in obtain- ing the pertinent records and documentation. If you would like more in-
formation on cost segregation or if you feel you may benefit from a cost segregation anal- ysis, please contact us at our office so we can discuss this with you in greater detail. Ralph Anderson, CPA is a managing partner at The Green Group. Michael McCabe is re- sponsible for individual, estate, charitable, cor- porate and partnership returns, projections and tax planning at The Green Group. n
tire cost of their build- i n g o v e r 27.5 years. Owners of other types of buildings, such as of- fices, retail space, gro- cery stores,
ated over 15 years. Land i m p r o v e - ment s in- clude items such as: • Landscap- ing • Fences • Curbs
These lists are not all en- compassing. There are many other examples that can qualify for the shortened de- preciation period. Depending upon the type of building, you can expect to deduct between 10 and 60 percent of its cost over the shorter recovery period. In addition to identifying personal property elements, the study will allocate the appropriate costs to these
Ralph Anderson Michael McCabe
restaurants, warehouses, and manufacturing plants often depreciate the entire cost using a 39-year or 31.5- year depreciation period, depending upon the date of acquisition. Under IRS cost segregation guidelines, however, a significant por- tion of a building’s cost can be depreciated over much shorter periods, usually five or seven years. The cost segregation rules can be complicated, but in brief they permit an owner of real estate to separately depreciate components of a building that are unrelated to its “operation and main- tenance” over the shortened depreciation periods. In ad- dition, these depreciation de- ductions are computed using an accelerated depreciation method which permits costs to be recovered at twice the rate that applies under the “straight-line” method. The slower straight-line method is used to depreciate residen- tial rental property and other types of buildings but this may not be the best option for your commercial properties. Typically, a cost segrega- tion feasibility study is con- ducted by an outside consul- tant who specializes in this area. The outside consultant typically includes appraisers, architects and engineers. They have high standards to adhere to in order to provide a study which is acceptable to the IRS. Many types of building components can qualify for the shortened depreciation period and accelerated de- preciation method. Here are some common examples:
• Parking lots • Lighting • Utilities
• Molding • Millwork • Carpeting • Wall coverings • Patricians
• Counters • Cabinets • Shelving
Made with FlippingBook - Online Brochure Maker