Can You Do Cost Segregation for Commercial Real Estate?

Claiming tax benefits can help you avoid losing money on your commercial real estate investments, especially if you intend to operate your properties for years to come. A common tax benefit is to claim your buildings on your tax form as depreciations. Using cost segregation for real estate could help you benefit from additional depreciations.

What Is Cost Segregation for Real Estate?

Depreciation does not only extend to the buildings you own. Your real estate probably has many separate components with value that can decline over time. For example, many rental properties include tangible personal property that can qualify for depreciation:

  • Appliances
  • Furniture
  • Carpets
  • Countertops
  • Fences

Real estate cost segregation breaks down a building into its individual components. The goal is to find separate parts of your property with depreciable value. By claiming multiple depreciations, you can save much more money on your properties.

How Does Real Estate Cost Segregation Work?

Cost segregation for real estate uses multiple forms of research to create a comprehensive analysis of your property depreciations. Depending on the kind of property you own, your cost segregation study for real estate could involve most or all of these methods:

  • Interviews
  • Property inspections
  • Reviews of property blueprints

In the event these research methods are not feasible, a cost segregation survey is still possible through an estimation of your property component values. Still, individual components can have many separate line items. The more information you can contribute to the analysis, the more comprehensive the result will be.

When Should You Conduct a Cost Segregation Study For Real Estate?

The good news is that you can carry out a cost segregation for real estate at any time once you have bought your property. A cost segregation analysis in real estate may also benefit you shortly after you have performed repairs on a building, or after remodeling your building to include add-ons and new landscaping which add value to your property.

However, the best time to analyze your buildings for depreciations is during the initial construction or remodeling phase. This should increase the accuracy of the survey since the building materials are still new. Your analyst would not have to account for the existing age of your property components when coming up with a depreciation figure.

Properly Conducting Cost Segregation for Real Estate

Trying to figure out the depreciations of your property is a complex process, so it is important to hire professionals to carry out the study. Commercial properties vary by type, so whoever analyzes your property should know what depreciable components to look for. In addition, your cost segregation for commercial real estate should comply with tax laws. Using a flawed survey to claim tax deductions could land you in trouble with the IRS and will likely result in an audit.

Fortunately, experienced professionals can conduct a cost segregation for real estate that can minimize your legal risk while maximizing your tax advantages. Contact KBKG to get in touch with experts who can answer your questions and prepare a cost segregation survey that examines the specific needs of your property.