Engineering-based analysis is like a three-legged stool. A thorough understanding of any commercial property rests on it. The first leg is a Property Condition Assessment, or its less extensive counterpart, a Building Inspection. The second leg is a Capital Needs Assessment. Finally, the third leg is Cost Segregation Analysis (CSA). Although less familiar than the other two, it is just as important. In short, a CSA helps you maximize the tax benefits of owning a commercial property.
How Cost Segregation Saves You Money
Owners typically depreciate a building and its structural components over 39 years. For residential rental property, the period is 27.5 years. Land improvements, on the other hand, depreciate over 15 years. However, many items inside the building depreciate much faster, over 5 to 7 years. These include furnishings, fixtures, flooring, and similar items.
Most investors hold commercial properties for 10 years or less. As a result, faster depreciation is a significant advantage. In fact, it can accelerate depreciation on as much as 30 percent of a building’s value.
These savings are real. Instead of paying taxes, the owner can put that money to other uses. Equally important, projected tax savings can make the numbers work on a project that seems financially unviable. In turn, lenders may approve a purchase loan they would otherwise reject.
Understanding the Numbers
According to the IRS, a construction engineer produces a more reliable study than someone without an engineering or construction background. Criterium-Hanna Engineers is one of the few consulting engineering firms with the expertise to do it. Most engineers want to focus on buildings, not numbers. Many of our engineers, however, have training in both. They are equally comfortable with a building’s structural components and the numbers behind a transaction’s tax implications.
One Inspection, Three Reports
We recommend completing all three legs of the stool at the same time. That means the Property Condition Assessment, Capital Needs Assessment, and Cost Segregation Analysis. This way, a single inspection produces all three reports. It’s a cost-effective strategy that saves you time and money.
A Cost Segregation Analysis may be essential for investors weighing a commercial property purchase. It can also help real estate brokers make a marginal transaction feasible. Criterium-Hanna Engineers has the unique expertise to perform it. Contact us to learn how we can build a solid foundation for your commercial real estate transaction.