Cost Segregation for Industrial Real Estate
Owners of industrial real estate incur many challenges to profitably operating their business. Given the difficulty of successfully running a business, it also makes sense to commit a modest effort to minimizing federal income taxes. While business owners spend large amounts of time attending to the details of their business, they typically five little consideration to the depreciation schedule for real estate they own.
The depreciation schedule sounds like a boring document best relegated to an entry-level accountant. Someone typically guesstimates the land value and assigns the balance of the cost basis to long-life improvements. The owner pays a higher level of income taxes and pays them prematurely when this approach is utilized.
With only a minimum commitment of time from the owner, it is possible to sharply reduce income taxes. In some cases, it is possible to obtain tax refunds in excess of $1,000,000.
Industrial real estate includes warehouses, office warehouses, manufacturing, self-storage, and “tech space.” While these buildings vary significantly, they all have a substantial proportion of short-life property. Short-life property can be depreciated over 5, 7, or 15 years versus 39 years for the industrial building.
The following is a summary of the proportion of industrial buildings which can often be allocated as 5, 7 and 15 year property:
| Depreciation Life (years) |
Proportion of Improvement Cost Basis |
| 5 year |
|
| 7 year |
|
| 15 year |
|
Industrial owners pay income taxes at the capital gains rate (maximum of 15%) instead of the ordinary income rate (maximum of 35%), to the extent that depreciation increases. Payment of taxes is delayed until the industrial real estate is sold. Business owners can reduce federal income taxes by increasing the amount of depreciation. A cost segregation study from a trained specialist following IRS guidelines is the best documentation for a depreciation schedule.
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Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions.
City:
- New York, NY
- Denver, CO
- Tampa, FL
- Hartford, CT
- Houston, TX
- Philadelphia, PA
- San Francisco, CA
- Miami, FL
- Orlando, FL
- New Orleans, LA
- Portland, OR
- Lancaster, PA
- Toledo, OH
- Louisville, KY
- Milwaukee, WI
- Oxnard, CA
- Springfield, MA
- Austin, TX
- Sarasota, FL
- Greenville, SC
- Omaha, NE
- Riverside, CA
- Nashville, TN
- Sacramento, CA
- Syracuse, NY
- Harrisburg, PA
- Cincinnati, OH
- Worcester, MA
- San Diego, CA
- Raleigh, NC
Cost segregation produces tax deductions for virtually all property types.
Property Type:
- Drugstore
- Amusement park
- Office building
- Manufacturing/processing
- Service station
- Hospital
- Commercial building
- Country club
- Nightclub
- Discount store
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Mineral product manufacturing
- Frozen food manufacturing
- Real estate lesser
- Apparel manufacturing
- Electrical component manufacturing
- Golf courses and country clubs
- Nondurable good wholesalers
- Food manufacturing
- Automotive parts distributors
- Furniture stores
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