The IRS to offers tax incentives to those who invest in commercial real estate
The IRS formalized these guidelines in 2004. If you are unfamiliar with this practice, it is called Cost Segregation, a method to accelerate the property depreciation associated with your commercial real estate (CRE) in order to leverage the time value of money. This allows you to optimize your depreciation schedule to create added cash flow.
The Tax Cuts Jobs Act (TCJA) even gave a healthy boost to these tax benefits, in the form of 100% Bonus Depreciation effective September 27, 2017.
That said, if you or your CPA filed a 2018 tax year extension, there is still time to capitalize on these benefits to reduce your 2018 tax liability, while improving cash flow. While many investors are familiar with this practice and use it, a significantly larger percentage of the CRE investing community is not. This is truly a cash flow strategy.
“The major advantage of cost segregation is not necessarily that it will produce more depreciation deductions. Instead, due to the time value of money, the advantage of these front-loaded deductions will be quantifiably greater than had the deductions been spread over longer periods of time using slower depreciation methods.” Journal of Accountancy © 2005 by the AICPA
If you want to reduce the tax liability associated with your 2018 extension and improve your cash flow, it’s not too late. You just need the engineering analysis done and to you CPA on or before September 1st, for them to include in your extension.
Cash is king, so having access to it now, versus spread over 27.5 or 39 years could be considered a “bird in the hand”. Think of this like an interest free loan from the IRS.
We welcome the opportunity to help you understand this strategy and provide a no-cost Feasibility Analysis to determine the tax and cash flow benefits hidden within your CRE property or portfolio.