Commercial Real Estate Property Tax Credits
Is Your Commercial Real Estate Eligible –
and Are You Missing Out?
The 2017 Tax Cuts and Jobs Act (TCJA) that took effect with tax year 2018 made some very favorable changes that greatly improve ROI and enhance transaction value for commercial real estate owners and investors who take advantage of them.
Considering the loss of most deductions under the TCJA, it’s more important than ever to take advantage of those that remain and, in the case of cost segregation-supported accelerated depreciation, greatly enhanced under the TCJA.
Accelerated depreciation reclassifies real estate assets from long term recovery periods to short term recovery periods – documented by an IRS-recommended engineering-based cost segregation study. This results in reduced taxable income, lower taxes and increased after-tax cash flow. These benefits apply to newly-constructed and acquired properties, as well as renovations, tenant and other improvements.
Properly analyzed and documented, these property tax incentives may even help turn a marginal investment into a highly-desirable, and financeable, transaction. that can benefit both buyer and seller.
This Tax Deduction actually IMPROVED under the New Tax Law
While most tax deductions have disappeared under the TCJA, one that remains and was even strengthened revolves around commercial real estate depreciation.
Eligibility for accelerated depreciation that reduces taxable income is now easier, while bonus depreciation has effectively DOUBLED under the TCJA.
Commercial real estate owners can now also take Section 179 deductions for nonresidential real property (building) improvements made after the building is in use. This includes improvements to a building’s interior for:
- Enlargement of the building
- Elevators or escalators
- The internal structure of the building (moving walls, for example)
- HVAC improvements
- Fire protection
- Security and other property improvements.
If these items are included in the original construction, they may be deductible expenses under a different category.
Every commercial real estate property should, of course, be depreciated properly, especially those generating positive cash flow. But passing IRS muster requires a specific type of documentation provided by a professional engineering-based cost segregation study.
And the federal government actually encourages these cost segregation studies. According to the U.S. Treasury Department…
“Cost Segregation Studies are a lucrative tax strategy that should be considered in almost every real estate purchase.”
Yet it’s estimated that 9 out of 10 commercial real estate transactions fail to take advantage of the substantial tax savings provided by this perfectly legitimate and fully IRS-compliant process.
What are Cost Segregation Studies & Why Bother with Them?
In layman’s terms, cost segregation is the combined engineering-and-accounting process of identifying personal property assets that are improperly grouped with real property assets (land and structural building components) to separate out, or segregate, the personal (non-structural) assets for accelerated depreciation for tax reporting purposes.
In short, cost segregation studies document building components eligible for accelerated depreciation of certain non-structural building costs – including leasehold improvements – that could generate substantial refunds of prior tax over-payments based on sub-optimal depreciation of building costs.
There is an additional bonus catch-up recovery provision which can further accelerate depreciation expense by 100%. Per the IRS:
“The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017, and placed in service before Jan. 1, 2018, remains at 50 percent.”
As long as you own a building bought, built, or renovated (technically since 1987, but the past 20 years is more realistic) – leasehold improvements also qualify – and pay income taxes (or have in the past three years), you can qualify.
Properly prepared engineering-based cost segregation studies are required to identify and reclassify shorter life assets more accurately assigned to shorter-term depreciation classifications.
Growth Management Group (GMG) works with Commercial Real Estate owners and investors across the nation, along with their CPA’s or accountants, to maximize tax incentives for their investment properties on a contingent fee basis – no savings, no fee.
Now in our fifteenth year, our clients have never been denied a tax reduction claim based on our cost segregation work due to…
- The team of engineering-based cost segregation experts we’ve assembled,
- Our state-of-the-art proprietary software based on our extensive experience, and
- A cautiously aggressive approach that is careful to comply with all relevant IRS requirements. We back that up by guaranteeing our work with a no-cost defense of our work in the unlikely event of an audit.
If you have constructed, purchased, or renovated commercial real estate over the past few years let GMG complete a free analysis to determine your tax incentive opportunities.
To find out in 30 seconds if you have a property tax credit, click here.