All Forum Posts by: John Norman

"When you get your report it will list the building components by item and class. In most cases you will see components listed under 5-year, 15-year, and either 27.5- or 39-year property, depending if it is residential or commercial real estate. Sometimes a component will also fall under 7-year property.

It is important to add each item separately to the depreciation schedule, even the 27.5- or 39-year property. The 5- and 15-year property accelerates the current depreciation deduction. But even the long end of the depreciation schedule has value. The roof, doors, electrical, plumbing and painting eventually need upgrading. When you upgrade any component you deduct the remaining undepreciated basis left in the replaced component.

The same applies to short end of the depreciation schedule. The parking lot, sidewalk and landscaping are 15-year properties. A replacement of any of these will trigger the remaining basis for deduction of said component.

The original estimate of tax savings from a cost segregation study underestimates the benefits as it assumes only the increased depreciation expense related to the 5- and 15-year property. There are only a few components that are not replaced prior to the component being depreciated. The foundation is one such item. But even things like plumbing and electrical are likely to need an upgrade before 39 years!

The advantage of the cost segregation study is the separate listing of components. The additional deduction from the old component (when replaced) helps offset the cost of the upgrade. Coupled with the repair regs, investment property owners and businesses with commercial real estate are better able to match deductions with the outlay of capital. A difficult issue in business and with landlords is the outlay of cash to improve a property only to wait up to 39 to get a tax benefit. Without a cost segregation study the cash is spent on the improvement and also taxed currently, increasing the cash needs to undertake a project. Cost segregation and the repair regs help eliminate some of the problem, allowing more projects to move forward..."

A look back study can go back to 1987. You put the property "in service" in 2018. You are under the rules from the "in service" date.  

Rules from the "in service" date included the 100% bonus (9/27/2017 to 12/31/2022). We provide audit protection.

"Placed in service" is your benchmark, not when you purchased it.Thinkj about it, makes sense. Watch the 1031. Don't touch any 1031 funds before a qualified entity advises you.

481a to 3115 The IRS prefers studies are done by professionals.

You can get 100%!

You can get 100%!

Document and Calculate IRC §481(a) adjustments required for 
Change in Accounting Method IRS Form 3115. 

These adjustments are typically necessary when a Cost Segregation study is performed on a building acquired or improved in a prior tax year and reclassifies costs to different depreciable lives or to expense categories under the new Tangible Property Regulations.

What is a 481(a) Adjustment?
Under current IRS rules, the calculation of depreciation or repair deductions for prior years can be recomputed, and a one-time catch-up adjustment (i.e. IRC §481(a) adjustment) is allowed in the current tax year for missed deductions. The adjustment is the difference between depreciation or repair deductions claimed versus depreciation or repair deductions that could have been claimed by the end of the prior tax year. This adjustment is reported on IRS Form 3115 and does not require amending any prior year tax returns

We're able to help. Fee is only $2,000! We usually have a minimum of 5 properties. You supply photos and floor plan for report. Our contractors can be engaged to help if you are unable to provide these items. Send me answers to the questions below and I'll tell you your estimated benefits. Takes a couple minutes.

Your Name for the Property____

Your Purchase Price of the Property (Subtract the Land Costs),____

Freestanding, Leasehold Building/Renovation SELECT Freestanding ____ Leasehold Building/Renovation ____

Date Acquired or Placed in Service____

Current Tax Year? Yes ____ No____

Return on Investment Factor _____

Federal Tax Rate____

State Tax Rate  _____

 ADS Depreciation Required for Real Property? No Yes 

Is this improvement newly constructed or acquired property? 

Newly Constructed ___ or  Acquired Pproperty ___

Good job! 

I've got $8m in land! What do you have?