Cost Segregation Studies for Retail
Cost segregation of retail spaces can be a true boon for a property owner, as they provide ample opportunities for depreciation with both the interior and exterior portions of the property. The interior features many short-life components, such as fixtures and carpeting, while the exterior can be used thanks to parking lots, signage, landscaping, and more.
O’Connor’s cost segregation studies will explore all facets of your property and find both short-life and long-term depreciation. This is in keeping with the IRS mandate that all “units of property” are considered when putting together the report. This means that even the buildings themselves will be options to help lower income taxes.
Cost segregation is the best and most accurate way to use accelerated depreciation to shield yourself from income taxes. On average, retail properties can expect to be paid back their investment in a study at a 9-1 ratio. If there are other enhancements, like bonus depreciation or a long history of catch-up depreciation, this could go as high as 70-1. The table below features a few case studies that we did in the past to get a rough idea of how you could benefit from a study.
Real Results for Retail Properties
| Depreciable Basis | Purchase Date | Year of Study | 1st Year Additional Depreciation | 1st Year Tax Savings | Year 1 Payback | Initial 5 Years Tax Savings | 5 Year Payback |
|---|---|---|---|---|---|---|---|
| $1,398,779 | 04/01/12 | 2014 | $183,485 | $69,640* | 23.2:1 | $103,652* | 34.6:1 |
| $1,400,000 | 05/01/14 | 2015 | $109,089 | $42,032 | 14.0:1 | $87,249* | 29.1:1 |
| $1,920,000 | 05/01/15 | 2015 | $77,224 | $28,107 | 9.4:1 | $138,173 | 46.1:1 |
| $19,076,394 | 04/01/15 | 2015 | $846,511 | $332,078 | 73.8:1 | $1,534,666 | 341.0:1 |
| $1,760,550 | 09/01/14 | 2014 | $84,184 | $30,166 | 10.1:1 | $135,511 | 45.2:1 |
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.
