YOU BUY COMMERCIAL REAL ESTATE FOR INCOME TAX BENEFITS…
Paul Levine
Commercial Real Estate Advisor and Managing Member @ LS Property Partners LLC| Retired CPA with over 50 years of income tax experience that no other Commercial Realtor has, Income Tax Consultant and unmatched Creatively!
YOU BUY COMMERCIAL REAL ESTATE FOR INCOME TAX BENEFITS…
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PART IV…
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One of the biggest areas to save or defer income taxes is Bonus Depreciation after you do a Cost Segregation Study.? When you buy a commercial piece of real estate you are buying the land that the property is sitting on and the actual structure and also, and this is a big AND Tangible Personal Property.? The land is NOT depreciable because it’s going to be there forever and never go away.? The structure is the bearing walls and the roof because you need these for the building to be a building.? That’s a repetitive sentence but it’s right.? But the third thing that I mentioned is the Tangible Personal Property in the structure.
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The tangible personal property in a multifamily housing facility, an apartment building, is the microwave ovens, the ranges, dishwashers, the cabinets and countertops in the kitchen and the bathroom, the doors and ceiling fans, etc.? So, tangible personal property is anything that is in the structure that can be taken out or off of the structure without destroying the structure.? The walls have to be standing and the roof has to remain to protect the structure.
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Just because I am talking about multifamily housing or apartment buildings here doesn’t mean that it is the only commercial real estate asset that Cost Segregation Studies and Bonus Depreciation apply to.?? Cost Segregation Studies and Bonus Depreciation apply to all forms of Commercial Real estate.? Just think of self-storage.? The garage doors on each unit and the other doors used by people to go from room to room and the cameras for the security system and the computers and ANYTHING that can be moved or removed without destroying the structure.? Just think of a shopping center or a shopping mall or a for profit university with all of the buildings and libraries and laboratories or doctors’ offices or office buildings.? EVERY piece of Commercial Real Estate has Tangible Personal Property and it’s all subject to Bonus Depreciation.
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And, as time goes on and I am getting older and wiser I am finding out that you don’t have to do things the same way that everyone else does.? So, if you come up with a new and different way to build the facility that may just give you more Tangible Personal Property you then get more Bonus Depreciation.? There are more ways to build a self-storage facility than only one and I can get you MORE Bonus Depreciation than anyone else.??
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Not just anyone can do a Cost Segregation Study.? You have to be licensed and you have to have the blessings of the Internal Revenue Service.? Cost Segregation Studies are normally done by engineers who can ascertain what part of the building is the “structure” and What part of the building is” tangible personal property”.
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I keep talking about Bonus Depreciation, but the reality is that residential real estate, the structure, is depreciated over 27.5 years using the straight-line method.? Nonresidential real estate is depreciated over 39 years using the straight-line method.? A Cost Segregation Study identifies Tangible Personal Property that is depreciated over 5 or 7.5 or 15 years using any legitimate accelerated method you want therefore taking more depreciation faster and therefore paying less income tax.? All Bonus Depreciation does is Accelerate the Accelerated Depreciation that the Internal Revenue Code already gives you!!!