Engineering-based analysis is a three-legged stool on which a thorough understanding of a commercial property rests. Property Condition Assessments and their less extensive counterpart (Commercial Building Inspections) are the first leg; Capital Needs Assessments are the second, and Cost Segregation Study is the third. A Cost Segregation Analysis is a tool used to maximize the tax benefits of owning a commercial property.
Commercial buildings and their structural components can be depreciated over a 39-year period (or 27.5-year period for residential rental property). While land improvements depreciate over a 15-year period. However, many things inside the building like furnishings, fixtures, flooring and the like can be depreciated over 5 to 7 years. Because most investors hold commercial properties for 10 years or less, this is a significant advantage, making it possible to extract as much as 30 percent of a building’s value during the accelerated depreciation period. These savings are real. Money the owner isn’t paying in taxes can be used for other purposes. Equally important, the projected tax savings can make the numbers work on a project that does not seem financially viable. Leading lenders to approve a purchase loan they might otherwise reject.
Understanding the Numbers
According to the IRS, a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background. Criterium-Dudka Engineers is one of the few consulting engineering firms with the expertise to do it. Most engineers want to focus on buildings; they don’t want to think about the numbers. Many of our engineers are trained to look at both. They are equally comfortable focusing on the structural components of a building and the numbers that inform the tax implications of a transaction.
By undertaking the Property Condition Assessment, the Capital Needs Assessment and the Cost Segregation Analysis – all three legs of our three-legged stool — simultaneously, Criterium-Dudka Engineers uses a single inspection to produce all the reports. A cost-effective strategy that we highly recommended.
For commercial property investors and for real estate brokers a Cost Segregation Analysis may be essential. Criterium-Dudka Engineers is the cost segregation company uniquely qualified perform it. Contact us for more information about how Criterium-Dudka Engineers can create a solid foundation for your commercial real estate transaction.