If you currently own, are constructing, or are repairing/renovating a commercial real estate or multi-family residential property, you likely know that the standard cost recovery lives for depreciation are 29 or 27.5 years, respectively. However, these long depreciation periods may not align with the cash flow you experience when purchasing or constructing a property using long-term financing.

In these situations, a cost segregation study may allow you to maximize depreciation deductions and reduce your tax burden. While these studies don’t change the depreciable life of the building structure, they allocate shorter useful lives of five, seven, 10, or 15 years for tax purposes to specific segments of the property. These segments may include HVAC, plumbing, electrical, demountable fixtures and other building finishes. In some cases, as much as 25% to 50% of the building’s total cost may qualify for reclassification into shorter-life assets. The result? You get to deduct these segments at a faster rate, potentially leading to increased cash flow over several years.

The process for completing a cost segregation study combines engineering, construction, and tax expertise to maximize tax deductions for prior and current real estate investments. Due to the complexity of study standards, it is crucial to work with an advisor who has a breadth of both industry and tax experience and knowledge. Should you determine that a cost segregation study may be beneficial, further analysis will begin on your property. You will be asked to provide several pieces of information, including, but not limited to, an appraisal, site map, blueprints, and construction invoices. Once the study is completed, you will receive a report of findings for your business, including the study’s methodology and the tax laws supporting the assessment.

At HBE, our experienced construction industry advisors can assist you with a cost segregation study on any commercial property that you own, are currently constructing, or are building for a client. By leveraging our expertise, you can optimize your tax benefits and improve your bottom line.

For more information or to discuss the advantages of a cost segregation study, please reach out to our office at (402) 423-4343 and ask to speak with a member of our Construction Industry Specialty Team.