Cost Segregation on Commercial Build Out

[Zachary Gray]

Question for the masses:

If I did a commercial build out for my business on a building that I do not own would you need a cost segregation to utilize accelerated depreciation of paid in capital or would you be able to do it without a cost segregation?

Independent question, does anyone have recommendations for cost segregation on existing rental properties that I own?

[Greg Scott]

Doing a cost segregation of an asset you do not own does not make any sense.

If you spent money making upgrades on a building you rent, those improvements could either expensed outright or you would have to capitalize them as an asset.  A CPA would know whether or not you could take bonus depreciation on the capitalized improvements, but since you already know what the cost was, there is no need for a cost segregation.

[Yonah Weiss]

Quote from @Greg Scott:

Doing a cost segregation of an asset you do not own does not make any sense.

If you spent money making upgrades on a building you rent, those improvements could either expensed outright or you would have to capitalize them as an asset.  A CPA would know whether or not you could take bonus depreciation on the capitalized improvements, but since you already know what the cost was, there is no need for a cost segregation.

 @Zachary Gray Tenant Improvements, can and should be depreciated, especially when they are large, and cost segregation is certainly needed if you have structural and non-structural components. You do not need to own the property to be able to depreciate. However there could be complications if the owner reduced rent based on your cost of improvements. 

As far as your second question. BP doesn't allow self promotion 😉 

[Greg Scott]

I stand corrected!

[Bonnie Griffin Kaake]

@Zachary Gray  If you did these renovations on a property you do not own but do rent, you have several options. I have many unanswered questions that I would need to know to give you the best advice. Here are a few: how long ago did you do these renovations? Are you or your company the occupant? Was the owner of the property involved in the renovation costs? Were you the contractor and are asking on behalf of the owner/tenant? 

If the renovations were all internal they may qualify for Qualified Improvement Property (QIP) or Tangible Property Regulations (TPRs) also called the Repair Regulations. There may also be the possibility of doing what is called a Partial Asset Disposition (PAD) which would allow the owner to expense the value of what was taken out of the property during the renovation from their depreciation schedule.  Like I said, too many unanswered questions. 

Yes, existing properties may likely qualify for cost segregation or some of the benefits I listed above. Additional questions?  

[Julio Gonzalez]

@Zachary Gray Yes, you can definitely have a cost segregation study performed on the property. As Yonah and Bonnie mentioned, there are a multitude of factors to consider. I'd recommend getting a free cost/benefit analysis quote to help you determine how beneficial to study would be for your specific property and situation. Do you have real estate professional status?