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| Cost Segregation Gets a Boost from New Tax Law |
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| Written by Scott D. Davis, JD |
| January 05, 2011 |
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In December, Congress enacted new legislation that substantially enhances incentives available for business investment in capital and equipment. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) creates some interesting opportunities in the commercial real estate marketplace. Among the incentives is a temporary extension of bonus depreciation, a bonus depreciation allowance of 100 percent of the cost of qualified property placed in service after September 8, 2010 and before January 1, 2012, and temporary increases in the deductible amount and investment limitation under Code Sec. 179 for tax years beginning in 2010. How does this apply to commercial real estate? The answer lies within a building’s deprecation. Typically, traditional real estate investments a company may own would be depreciated for tax purposes over a 39 year period for non residential and 27 ½ years for residential properties. In the late 1980s, the Federal tax code provided us with an opportunity to carve out (or segregate) portions of the building and depreciate them quicker. The government realized that most companies construct buildings for very specialized purposes, including structures and components that don’t last 30 years. From decorative lighting to heavy duty electrical and plumbing components, by carefully reclassifying these components under accelerated depreciation schedules, the business can recapture portions of their construction investment much faster. ÂIf you have ever considered taking advantage of accelerated depreciation via cost segregation but hesitated for some reason, this new wrinkle may just make the exercise that much more exciting. Under the new rules, certain assets, for example specialty electrical components or decorative lighting, may stepped up from a five to seven year recovery schedule to an immediate deduction.  Depending on your application, your cash benefit could be significantly enhanced now. The rules are still rather complex, and not all situations may qualify under these rules. However, the opportunity is significant enough to warrant at very least a review of the property, related tax and engineering documents and assess your financial situation to determine if there is value to a cost segregation study. If you would like to discuss this further, please feel free to e-mail me at sdd@thehuntergroup.com or give us a call at 201-261-4030, or visit our website at www.thehuntergroup.com to learn more about cost segregation.  Scott D. Davis, JD Hunter Group CPA LLC  |
| Last Updated on October 23, 2011 |