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Cost Segregation For Commercial Buildings

If you’re an investor who has recently acquired or are building a commercial property, you should know about the advantages of having a cost segregation study performed for your business.  Cost segregation studies are most useful for commercial real estate.

As your building ages, it loses value. That’s called depreciation. When you do a cost segregation study, it classifies your building’s components (like the lighting system) into shorter recovery periods so you can write off the components faster in your taxes and reduce taxable income. The study carves out certain qualifying portions of your building into five-, seven- and 15-year lives that are normally accounted for in 39- or 27.5-year categories. 

Here are some examples:

  • 39-year property: Windows, walls, doors, roofs, HVAC systems, plumbing, electrical
  • 15-year property: Exterior improvements such as fencing, exterior signage, asphalt, curbs, landscaping, exterior lighting
  • 5-year property: Carpeting, appliances, specialty lighting, woodwork, unit partitions, individual unit locks, security, business-specific heating and ventilation systems

Benefits of a Cost Segregation Study

  • An immediate increase in cash flow
  • A reduction in current tax liability
  • The deferral of taxes
  • The ability to reclaim “missed” depreciation deductions from prior years (without having to amend tax returns)

List of Eligible Commercial Businesses

  • Restaurants (both eat-in and fast-food)
  • Retail and chain stores
  • Grocery stores
  • Shopping malls
  • Office buildings
  • Gas stations
  • Auto sales lots
  • Hospitals and healthcare facilities
  • Factories and manufacturing plants
  • Theme parks 
  • Sports stadiums and arenas 
  • Hotels
  • Motels 
  • Rental apartment complexes.

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