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Cost Segregation Studies of Office Buildings

Office buildings are both one of the most complex buildings to run a cost segregation study on and are also one of the most rewarding. With many facets to get through, identifying short-life items for depreciation can be difficult. Suites, common areas, and individual offices must be swept for depreciable components, leaving no stone unturned.

The search can be expanded outside the building itself, as parking garages, landscaping, signage, parking lots, and other usual targets are key to getting the most value out of a cost segregation study. It should be noted that the buildings themselves are also part of the same study, though they are counted as long-term components.

When O’Connor does a cost segregation study on a commercial property, such as office buildings, there is typically a stout ROI. You can expect to get paid back on your investment by at least a 3-1 ratio. This can be expanded greatly thanks to other enhancing factors, and in extreme cases can even be something like 75-1 when you compare savings to the cost of a study. Consult the table below to see how properties can benefit in the first year and beyond.

Examples of Real Study Results

Depreciable Basis Purchase price Purchase Date Year of Study 1st Year Tax Savings Year 1 Payback Initial 5 Years Tax Savings 5 Year Payback
$804,750 JUN 2015 2015 $43,868 $14,633 3.3:1 $72,671 16.1:1
$3,692,689 JLY 2015 2015 $57,359 $20,005 6.7:1 $22,433 7.5:1
$32,645,232 JLY 2015 2015 $576,486 $225,580 75.2:1 $249,979 83.3:1
$7,939,100 AUG 2015 2015 $134,820 $50,209 16.7:1 $214,331 71.4:1
$2,588,645 MAY 2015 2015 $102,018 $37,379 12.5:1 $173,782 57.9:1

Results

* Results from “Catch Up” studies which allow the owner of properties purchased in previous tax years to benefit from cost segregation in the current tax year without filing amended returns.

NOTE: The above listed tax savings are based on a 39.6% tax rate for the owner.