When it comes to owning commercial real estate, maximizing returns is a top priority for any investor or property owner. One often-overlooked strategy that can significantly boost your bottom line is a cost segregation study. This process involves identifying and reclassifying certain assets in your property to accelerate depreciation deductions, resulting in immediate tax savings and increased cash flow. Within the past year, two projects changed from selling right after construction to holding long-term. We knew with the changes in the market the best option for all involved was to get an in-depth cost segregation report to get the maximum depreciation while we hold the two properties for a more advantageous time in the market when we can sell them. Let's delve into the benefits of getting a cost segregation study done on your commercial property.
1. Accelerated Depreciation Deductions
One of the primary benefits of a cost segregation study is the ability to accelerate depreciation deductions. By identifying assets that can be reclassified from a 39-year depreciation schedule to a 5, 7, or 15-year schedule, you can front-load depreciation deductions, resulting in substantial tax savings in the early years of ownership.
2. Increased Cash Flow
By accelerating depreciation deductions, you can increase your property's cash flow. These tax savings can be reinvested into the property or used for other investments, improving your overall financial position.
3. Improved Return on Investment (ROI)
A cost segregation study can significantly improve your property's ROI by maximizing tax benefits. The increased cash flow and reduced tax liability can enhance your overall return, making your investment more lucrative.
4. Enhanced Property Valuation
Properly documenting and classifying assets through a cost segregation study can result in a higher property valuation. This can be beneficial when seeking financing or selling the property, as a higher valuation can lead to better loan terms or a higher sale price.
5. Compliance and Audit Protection
A thorough cost segregation study conducted by a qualified professional can provide documentation to support your depreciation deductions in the event of an IRS audit. This can help you avoid penalties and interest on any disputed tax liabilities.
6. Planning for Future Renovations or Improvements
A cost segregation study can identify assets that may qualify for bonus depreciation, which allows you to deduct a significant portion of the cost of eligible assets in the year they are placed in service. This can be particularly advantageous when planning for future renovations or improvements to your property.
A cost segregation study can be a valuable tool for commercial property owners looking to maximize returns and improve cash flow. By accelerating depreciation deductions, increasing cash flow, improving ROI, enhancing property valuation, ensuring compliance, and planning for future improvements, a cost segregation study can provide a range of benefits that can significantly impact your bottom line.