Client: Diversified Real Estate Development/Asset Management Company
Challenge: Segregate Building Costs to Maximize Depreciation
A real estate developer, operating in eight states, asked AccuVal to conduct a cost segregation analysis of six commercial properties recently purchased in northern Illinois and Florida. The mission: Identify property components eligible for accelerated depreciation and reclassify them as personal property to shorten their tax life.
The success of the engagement would depend on the proper execution of a cost segregation analysis. This strategic tool can save taxpayers millions of dollars annually by maximizing the accelerated depreciation available to taxpayers under federal tax law. When eligible property is correctly reclassified, taxpayers benefit from accelerated depreciation of five, seven or 15 years, rather than the 39-year straight-line depreciation period, thus saving tax dollars. But substantiating claims of accelerated depreciation for existing properties is challenging. It demands broad knowledge of construction methods, materials and techniques. Often, as in this case, blueprints and construction cost records were no longer available, making the process more complicated. AccuVal applied its knowledge of tax law, general contracting, engineering and real property valuation. The firm inspected sites, assessed land values and methodically recreated information about the buildings' underlying construction characteristics to give the client the necessary documentation to realize the benefits of accelerated depreciation.
AccuVal determined that 25 percent of the properties' purchase price qualified for accelerated depreciation and created the documentation the developer needed to support the depreciation claim. This effort ultimately provided the client with $2.1 million of depreciation benefits, freeing capital for other strategic business opportunities.
Years of experience in real and personal property valuation. An intimate understanding of tax laws. Firsthand knowledge of construction design and engineering. The insight to help companies maximize their competitive position in the marketplace. That's The AccuVal AdVantageTM at work.