Real Estate Cost Segregation

The Business Need

Real estate owners have long recognized the benefit of depreciation to decrease taxable income. The faster a building can be depreciated, the longer taxes can be deferred, and the higher the present value of those deferrals. An IRS-compliant, cost segregation study, performed with an engineering approach to segregate building costs into shorter-lived asset classes, can result in accelerated depreciation and increased cash flow.

The EKS&H Solution

 
Cost Basis
NPV Savings
Benefit to Cost
Additional
1st Year
Depreciation
High Tech Manufacturing Building
$6.5 M
$366 K
33 times
$182 K
Apartment Complex – 7 Buildings
$16 M
$885 K
43 times
$572 K
Retail, Office, Residential – 2 Buildings
$23.6 M
$578 K
55 times
$580 K
Real Estate Developer – 11 Buildings
$41.5 M
$1.5 M
18 times
$2.5 M
Remodel of an Electrical System
$450 K
$150 K
15 times
$145 K

 

Key Indicators

  • New building worth $800k or more
  • Tenant improvements greater than $400k
  • Building has been purchased, constructed, expanded, or renovated in the past twelve years and will be retained for several more years
  • Company has, or is expecting to have, taxable income in the next few years
  • Engineering approach has not been used to determine asset life in the past

Benefits

Improved cash flow
Type or Use of Building % Typically Classified as Shorter-Lived Property
Office Building 23% - 32%
Auto Dealership 33% - 41%
Manufacturing 25% - 30%
Hotel/Motel 18% - 30%
Retail Building 20% - 30%
Medical Building 23% - 30%