By H. N. “Hank” Saurage, IV, CCIM, President / Broker of Saurage Commercial Real Estate
What is Cost Segregation?
This IRS-approved application simply allows commercial property owners to accelerate depreciation and reduce taxes…adding cash flow. The current straight line depreciation is taken over 39 years. By breaking the improvements down to their expected life (ie: HVAC 5-7 years) the owner can depreciate components more aggressively and enjoy the benefits from the shorter depreciation period on the components. Typical tax savings are 7%-10% of the building cost over a five year period. On a $1,000,000 property, that’s $70,000 to $100,000 savings within the first five years! Property owners often use the tax savings to reinvest, apply to principle payments, or just spent on themselves.
Who Should Consider Cost Segregation?
Owners/Buyers of Commercial Property who intend to hold the property for at least 5 years or more. The idea of accelerating depreciation of the building and its components is to reduce taxes and increase cash flow. If the property owner sells the property within the first five years, they would recapture the depreciation and pay taxes accordingly. Cost Segregation is best suited for the commercial property owner who intends to keep the investment long term.
Cost Segregation Can Be Used to Enhance Financing.
Owners/Buyers financing or refinancing commercial property can request the after tax savings from Cost Segregation to be reserved against debt service, which increases the debt service coverage ratio (DSC). Typical DSC increases using this method are .10%-.12%. Lenders love this idea because it reduces risk and makes approving a loan easier.
Learn more about Cost Segregation by contacting one of the consultants at Saurage Commercial Real Estate or your local tax adviser. We can recommend a Cost Segregation specialist and provide a FREE short analysis of your property through one of our trusted Cost Segregation service advisors.Hank obtained his Real Estate Sales License in 1984, followed shortly thereafter by his Real Estate Brokers License in 1986 and then his Real Estate Brokers License in Mississippi in 1997. In 1990, Hank earned the CCIM (Certified Commercial Investment Member) designation from the Commercial Investment Real Estate Council.
Saurage Company, Inc dba Saurage Commercial Real Estate was founded in Baton Rouge in 1991 with the purpose of providing exceptional real estate services with an emphasis on commercial property and property management. Saurage Commercial Real Estate offers to its clients a full range of real estate services including brokerage, investment advising, development consulting, REO disposition specialists, asset management, fee based consulting, tenant representation, and buyer representation. The staff of professionals includes combined experience of 50 years, as well as CCIM Designees and Candidates and recipients of Master of Business Administration.