When a commercial property is purchased there are many parts in the building that are not real property, rather they fall under the category of Personal Property. However, most commercial building owners take the full value of the property as the value of the building.
As we all know a building is depreciated over a long period of time. Non-residential real property is depreciated over 39 years and resdiential real property is depreciated over 27.5 years.
So, if you buy a building for $10 million and if the value of the land was $2 million, then in normal circumstances you would depreciate the $8 million over 39 years.
However, if you undertake a Cost-Segregation study of your building you would be able to separate the value of personal property from real property.
Personal property is depreciated over a much shorter period of time (5 or 7 years). Thus, if you get the value of the personal property separated you would be able to depreciate that value over a shorter period and thus have higher depreciation deduction and save on federal taxes.
Many a times commercial property investors do not pay attention to this and do not know about this excellent opportunity to save on taxes.
If you own commercial real estate, find out if you could benefit from a Cost Segregation Study for your commercial building. You may even be able to go back and claim refund on previous years if you get your cost segregation study done.
