M id A tlantic Real Estate Journal — Tax Issues/Accounting — Financial Digest — July 24 - August 13, 2020 — 11A T ax I ssues /A ccounting
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By Robert Rahner, Cost Recovery Solutions LLC Cost segregation in a COVID-19 world: a key tax strategy that can provide CRE a silver lining
estate have taken due to COVID- 19 . Depending on which expert predi c t i ons you choose to believe, there is a chance t h a t t h e worst of the W
e all know the hits that certain sectors in commercial real
to apply 100% bonus deprecia- tion to Qualified Improvement Property (QIP), which refers to certain interior improvements made to a non-residential building. The change is also retroactive to 2018 and 2019. • It provided a five-year loss carryback for 2018 – 2020 tax returns, allowing some inves- tors to modify prior tax returns to offset taxable income and obtain a refund. Taxpayers can benefit even more by combining these new provisions. For example, if a company chose to apply 100% bonus depreciation for QIP
identified in a 2018 cost seg - regation study and it created a significant loss, it could use the loss to modify its return in a prior year when tax rates were higher. Cost segregation gives in- vestors more opportunities to create significant losses and increase cash flow in this COVID-19 pandemic. Do cost segregation providers have to be licensed, and how are studies performed? Currently, there are no for- mal licensing requirements continued on page 20A
Robert Rahner
crisis is yet to come. The uncer- tainty the future holds leaves many investors searching for a plan to position themselves to weather more potential storms. One promising avenue is through a cost segregation study. What is cost segregation and how can it help me? This IRS-approved, engi- neering-based tax strategy maximizes depreciation de - ductions on commercial real estate property. Commercial buildings generally must be de- preciated over 27.5 or 39 years. However, the IRS has desig- nated certain types of building components and land improve- ments that can be depreciated at a much faster rate of 5, 7 or 15 years (such as flooring, ac - cent lighting, decorative mill- work and landscaping). Under the Tax Cuts and Jobs Act (TCJA) of 2017, an additional immediate 100% bonus depre- ciation incentive effectively cut that rate even further to just 1 year. Cost segregation studies identify which assets in and around a property qualify for these reduced depreciation schedules. Reclassifying quali- fied assets can save real estate investors tens of thousands or even millions in income taxes. A study can be performed on new construction/acquisitions, or even on previously owned property (up to 15 years) with- out amending tax returns. The table above details the percentage of assets that can typically be reclassified as part of a cost segregation study and the resulting tax savings gained based on different prop- erty types. A quality study can provide critically needed tax relief to many in our COVID-19 world. Did the CARES Act affect cost segregation? The CARES Act provided some key benefits for real es - tate investors: • It restored a 15-year depre - ciation schedule and the ability
Increasing cash flow one property at a time COST RECOVERY SOLUTIONS LLC CRS
• Cost Segregation • Energy Tax Services • Tangible Asset Appraisals • Fixed Asset Reviews Experts in helping commercial property owners increase their tax savings and return on investment Discover the CRS difference: • 20+ years of experience • ASCSP, ASA, CFA certifications • Serving clients nationwide • A trusted partner with proven results 106 Apple Street, Suite 105 Tinton Falls, NJ 07724 732.548.3855 info@crscostseg.com Call for your FREE benefits proposal to start saving today!
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