Mixed-Use Development Cost Segregation Study
In today's complex commercial real estate landscape, maximizing return on investment requires strategic financial planning. United Tax Advisors recently completed a comprehensive cost segregation study for a $16,000,000 mixed-use development, revealing significant opportunities for accelerated depreciation and enhanced cash flow.
Through detailed engineering analysis and tax expertise, we meticulously examined every component of this mixed-use property—from its core structure to specialized tenant improvements. Our study identified substantial assets eligible for accelerated depreciation schedules, unlocking immediate tax benefits that traditional depreciation methods would have delayed for decades. By reclassifying qualifying components into 5-year, 15-year, and 39-year recovery periods, we created a tax strategy that aligns with both IRS guidelines and our client's investment objectives.
Mixed-Use Commercial building
Total Purchase Price: $16,000,000
In Service Date: August 20, 2022
Goal: Accelerate depreciation to maximize tax savings
Total Accelerated Depreciation:
$4,000,000
Additional Cashflow(Year 1):
$1,400,000
Asset Classification Results:
MACRS Assets Life | Cost Segregation Allocation | Original Allocation | After Cost Segregation |
5 | 15% | - | $2,400,000 |
7 | - | - | - |
15 | 10% | - | $1,600,000 |
39 | 75% | $16,000,000 | $12,000,000 |
5-Year Assets (15% of Total)
Amount Allocated: $2,400,000
Description: This category includes assets directly related to business operations such as dedicated HVAC systems, specialized electrical installations, data/communication systems, and select interior finishes specific to tenant improvements.
Depreciation Rate: Accelerated 5-year schedule, with potential for bonus depreciation.
Bonus Depreciation: Assuming bonus depreciation is available, the owner could deduct 100% of these costs in Year 1.
15-Year Assets (10% of Total)
Amount Allocated: $1,600,000
Description: These assets encompass land improvements including parking structures, exterior lighting systems, landscaping features, and site utilities.
Depreciation Rate: Accelerated 15-year schedule with potential eligibility for bonus depreciation.
Bonus Depreciation: The investors could take a 100% deduction on these assets in the first year if bonus depreciation applies.
Remaining 39-Year Assets (75% of Total)
Amount Allocated: $12,000,000
Description: The core building structure including walls, foundations, standard electrical systems, and basic building components.
Depreciation Rate: Standard 39-year schedule without accelerated benefits.
Federal Tax Savings: Assuming a 35% tax rate, the $4,000,000 in accelerated depreciation could yield approximately $1,400,000 in tax savings for Year 1 alone.
Cash Flow Benefit: Significant increase in cash flow resulting from reduced tax liability, allowing for substantial reinvestment opportunities.
Summary
Through cost segregation, the property owner unlocked accelerated depreciation on 25% of the property's basis. This strategic approach provides substantial tax savings in the millions, increases immediate cash flow, and positions the owner for significant reinvestment opportunities in their commercial portfolio.
Our team specializes in simplifying commercial building cost segregation studies, ensuring you maximize your depreciation benefits and retain more capital for growth. Don't let potential savings slip away! Trust United Tax Advisors to manage the details while you focus on scaling your business.
Contact United Tax Advisors today! Increase cash flow and elevate your investments.