Generally speaking, non-residential real estate is depreciable over a period of 39 years. This obviously creates a long-term horizon for recovering the cost of the property through depreciation deductions. However, several recent developments have created the opportunity for the owners of commercial real estate to accelerate their depreciation deductions and derive significant tax savings over a shorter period of time.

A 1996 tax court case (Walgreen & Co. v. Comr.) allows taxpayers to depreciate decorative and other non-structural fixtures over a period of five years. This case would allow you to depreciate such fixtures as counters, shelving, and removable fixtures over a five-year life. The present value of the tax savings generated by this method can be as much as 5 to 10 percent of the cost of the property.

The same principle can be applied to other building costs that qualify for shorter depreciable lives (five, seven, or fifteen years). By identifying these assets and properly classifying them according to rulings and guidelines established by the Internal Revenue Service, we can create significant tax deferral opportunities and cash flow savings that increase the returns on your real estate investments.

As you can see, the benefits of using similar cost segregation methods are substantial. As outlined in the enclosed summary, we have used these and other techniques to generate significant tax savings for many of our real estate clients, resulting in improved cash flow and return on investment. We welcome the opportunity to further discuss this matter with you in relation to future acquisitions and development projects.
 

Office Building
This $13.9 million office building was built in 1999, and our Cost Segregation Study created $495,000 in present value tax savings by reclassifying $1.3 million of personal property and $213,000 in land improvements.

Office Building
This purchased property included approximately $115,000 of personal property and $57,000 of land improvements, resulting in present value savings of $38,000, or nearly 5% of the total cost of acquisition.

Apartment Complex
This multi-phase residential complex was constructed at a cost of $14.3 million. Our Cost Segregation Study effectively reduced this cost by $430,000 through a careful analysis of the personal property and land improvement expenditures.

Apartment/Condominium Complex
Upon completion of this $8.8 million project, we classified $776,000 of personal property and $1.2 million of land improvements resulting in $341,000 of present value tax savings.

Luxury Apartment Complex
This $12.4 million upscale facility included approximately $1.1 million of personal property and $1.0 million of land improvements that generated nearly $300,000 of present value savings.

Office Building
This $11.2 million office building was completed in 2001, and our Cost Segregation Study created $453,000 in present value tax savings, effectively reducing the projected cost by 4%.