Potential Value: Minimum of purchase/construction/remodel price is needed. Typically, can accelerate around 25-30% of depreciation on buildings and some other business assets.
Ease of Implementing: If you are handling your own books, about 30 minutes getting tax returns gathered. Many times a CPA or CFO will be in charge.
Cost of Implementing: Fees are based on accelerated depreciation recovered.
For every $500,000 of commercial property, we are able to find around $37,000, as an average. I am not talking about loans or anything that causes a lien. This does not require any changes to the structure. There is no up-front or ‘investment’ money needed.
Give up? Many business owners have hundreds of thousands, if not millions of dollars in real estate or improvements. They are allowed to write that off of their taxes in the form of depreciation. Depreciation is where the IRS determines the useful life of a business asset and then allows it to be broken out over time (Often 39 years) as a tax deduction. At first glance, it makes sense that a building has a long ‘depreciation’ term, because we expect most buildings to be around a long time. However, all business owners know that there are many, many parts of their property that will last nowhere near 39 years. Business owners spend big money in showcases, shelves, lighting, flooring etc etc to get you to pay attention to them. Truth is, most of those investments will be lucky to last 10 years, before they are outdated and worn out. How about plumbing fixtures, like faucets or water heaters? There are too many examples to give, but you should be getting the point by now. A lot of the components of a building will need to be replaced multiple times throughout the life of a building.
So why should the IRS hold your tax deductions on those items for the full term of depreciation? Well, the good news is, they will be happy to ‘accelerate’ the depreciation on those items. The bad news is, you have to prove what the useful life is, for each individual component… That is a dilemma, because your CPA or Tax advisor is not an engineer. You can hire an engineer to do, what is commonly called a ‘cost segregation study’ and write a report for the IRS, however, that costs a lot of money, up front, and there is no guaranty they will find enough to cover that cost.
So, let’s cut to the chase!! I have a solution. I work with a company that has been doing cost segregation for 17 years. They will take a look at your situation and if they believe there is a good upside to doing this, they will take the risk, perform the study and build the IRS report for you.
Oh, and they can also provide a number of other services to increase the amount of money you get. They are all about finding money for you and they are extremely good at it.
Here are some industry averages:
Restaurant – $230,000
Hotel – $240,000
Auto Dealer – $60,000
Medical – $271,000
Funeral Home – $153,000