Appreciating depreciation. Cost segregation studies deliver earlier than expected tax breaks for commercial property owners.

Jeff Hiatt
Jeff Hiatt of Performance Business Solutions, LLC

 HAMPTON FALLS, NH…

In today’s economy, commercial property owners face an uphill battle in finding the funds to make the necessary improvements to retain and/or enhance a property’s value.  Cost segregation studies offer some property owners an opportunity to write off depreciation of building assets over a shorter period than the traditional 39-year depreciation period for a real property asset. This can generate funds in the form of a larger tax deduction. The funds that would have been paid in income tax could then be reinvested in renovations for that property or leveraged to help acquire another property.

A cost segregation study itemizes assets in a building into real property assets and personal property assets. Loosely speaking, real property refers to anything connected to the structure of the building (e.g. the foundation), while personal property assets can be items ranging from non-structural items like carpeting or aesthetic improvements like landscaping. By separating personal property assets, which have a shorter life expectancy than real property assets, you claim a greater rate of depreciation over a shorter period of time.

“Let’s say you buy an inn or resort with millwork and IT wiring.  Prior to cost seg studies, owners would have deducted depreciation of these items over 39 years instead of five or seven years,” said Jeff Hiatt, founder and CEO of Performance Business Solutions, LLC, based in Hampton Falls, NH. “For many commercial property owners, the personal asset depreciation deductions can result in a sizable return.”

Hiatt’s company, Performance Business Solution’s, LLC, specializes in expense reduction consulting for all types of business. One area that he has helped thousands of property owners across the US is with cost segregation studies. “Cost seg” studies can be applied to a wide variety of commercial properties, including apartment buildings, restaurants, manufacturing facilities, grocery stores, office buildings, etc. The process requires examination of any available building plans, site surveys, appraisals and/ or invoices. A site visit is also usually involved so project engineers can take photos and get a feel for the building.

After an inventory of assets is taken, a report of the building, per IRS Standard, is then completed. The numbers from the report can then be interpolated into the building owner’s client’s tax forms and filed with the next return.

The entire project can take from three to eight weeks to complete, with minimal disruption to the building’s activities or work flow. The price tag of the cost segregation study can range from $5,000 to $25,000, depending on the building’s size and tenant count.

“Performance Business Solutions conducted a cost segregation study on our property in York Harbor, Maine, the Stageneck Inn. They were extremely thorough and detailed in their study,” said Mark Foster, owner of Mark Foster, who also owns the Days Inn in Dover, New Hampshire. “When we turned the report over to our accountants, they felt very comfortable with the information provided and applied it to our tax returns. That gave us a fairly sizeable return, which we used to convert a house adjacent to the Stageneck Inn into a furnished rental property. Without the cost seg study, that might not have happened as quickly.”

Performance Business Solutions, LLC is located at 87 Lafayette Rd. Suite 11, Hampton Falls, NH 03844. The company helps businesses nationwide reduce expenses in a variety of areas. Performance Business Solutions, LLC, works with accountants, attorneys, and other experts to determine the best way for clients to reduce costs and increase profits. 

For information on arranging a cost segregation study on your commercial property, call (888) 989-0054 or (603) 926-2888. You can also send an e-mail to jdh@revenuebanking.com, or visit www.RevenueBanking.com.