Real estate investors should talk with their CPA about whether they’re getting all the deductions in a post-tax reform world.
Theresa M. Samples, CPA, is a partner and director of real estate and construction services with the firm Mueller Prost.
If your clients haven’t considered procuring a cost segregation study on their properties, they may not have claimed the appropriate amount of depreciation. That means they may have missed out on tax deductions in the form of additional depreciation expenses earlier in the life of their properties. They may not know that the studies typically apply to and benefit commercial properties of all types and sizes.
A cost segregation study is the process of identifying and separating personal property that is or has been grouped with real property. To calculate depreciation for federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. A cost segregation study determines the appropriate asset class life for the entire tax basis of the property and allows property owners to reclassify components of and improvements to commercial buildings from real property to personal property. This essentially allows the assets to be depreciated on a five-, seven-, 10- or 15-year class life instead of the traditional 39-year class life of real property (27.5 years for residential rental property).
Read full article from NAR HERE
By Theresa M. Samples