Cost-Segregation Depreciation & Your NNN Investment
Do you own a triple-net lease investment property or other commercial real estate? If so, you may benefit from a cost-segregation study (CSS) and a tax law that significantly accelerates depreciation of certain building expenses. A CSS identifies and reclassifies costs that would normally be depreciated over a 27.5 or 39-year period into a much shorter depreciation period, thereby freeing up capital for other investment opportunities.
Preserve Capital & Increase Income
Depending on your property and individual tax variables, cost segregation depreciation (CSD) could allow money spent on non-structural, capex improvements, such as carpet, indoor and outdoor lighting, heating and cooling systems, and landscaping to be depreciated over five, seven, or 15 years, versus 27.5 or 39 years.
This substantially shorter depreciable tax life – possibly an immediate 100% write-off the year of purchase – helps commercial property owners, including NNN lease investors, preserve capital, realize immediate cash flow, and achieve significant tax benefits on new and existing buildings. These benefits are also gained through asset reclassification and write-offs when the asset is sold.
The Benefits of CSD
- Adjust timing of deductions to maximize tax savings.
- Reduce/defer current tax liability.
- Increase cash flow.
- Take the entire adjustment (100% on buildings purchased after September 2017) in the year the CSS is completed.
- Re-claim deductions dating back to 1987 without having to amend tax returns.
- Create an audit/paperwork trail that satisfies the IRS’s audit techniques guide (ATG).
How to Utilize the Tax Benefit
The only way to determine if your triple-net lease property qualifies for the maximum benefit under this tax law is to have a CSS performed by specialists with engineering, architecture, construction, and tax accounting expertise.
These specialists analyze your architectural drawings and every physical element of your building, inside and out, to determine cost estimating and allocations as they apply to the law. It is imperative that your CSS be performed by a highly-accredited firm, mainly to satisfy the IRS’s strict guidelines, but also to ensure you don’t leave any money on the table.
Before you purchase a triple-net lease property, Westwood Net Lease Advisors can make a CSS part of your initial analysis to determine if CSD makes sense on the property and makes the purchase worthwhile.
When to Get a Cost-Seg Study
It is routine to have a CSS completed upon purchasing a new building, but many investors don’t realize it can also be performed on a building owned for many years – new deductions can be taken back to 1987 without amending your tax returns.
A study is also advantageous when you finish construction on a new building or complete a redevelopment or renovation of an existing building. It is important to note that if you currently own commercial property, consult your CPA regarding your individual tax situation and whether CSD would work for you on the properties you own.
To Wrap It Up – Save Money This Tax Season
Cost-segregation depreciation may shorten your property asset’s tax life, swiftly depreciate expenses, and decrease tax payments, releasing cash for investment opportunities or current operating needs.
If you’d like to find out if you can save money this tax season on your NNN investment, Westwood Net Lease Advisors works nationwide with reputable CSS preparers with referenced credentials and expertise – we would be happy to connect you. Contact us today to learn more – we’re here to help. 314-997-5227