Commercial Investment Real Estate Winter 2020 | Page 19
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this law was passed, building improvements like plumbing, ventila-
tion systems, and alarm systems were treated as 15-year assets. This
was great news for renovators; they could now depreciate these as-
sets over a shorter, 15-year period.
When the Tax Cuts and Jobs Act was passed two years
later, Congress’s intent was to extend bonus depreciation to qual-
ified improvement property. Unfortunately, the appropriate word-
ing did not make it into the tax bill, and qualified improvement
A cost segregation study is a
strate gic planning tool that can assess
an entity’s real property assets and
identify a portion of those costs that can
be treated as personal property.
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property took a major hit. Not only did it never become eligible for
bonus depreciation, it reverted to 39-year property. While we are
still hoping for a technical correction, qualified improvement prop-
erty is currently no better off than real property.
While renovators may feel like they got the short end of the
stick, they can still benefit from a cost segregation study. The purpose
of their study should be to identify which assets are not qualified im-
provement property so that they can depreciate those assets over a
three-, five-, or seven-year period and qualify for bonus depreciation.
All taxpayers in the commercial real estate industry — con-
tractors, renovators, purchasers, and investors — may benefit from
a cost segregation study to determine which property qualifies for
accelerated depreciation. To help with the study, engage qualified
professionals with expertise in this area like veteran engineers,
quality CPA firms, and others holding the Certified Cost Segrega-
tion Professional designation. These professionals will help deter-
mine if the benefits will outweigh the costs.
John Blake, CPA
Partner with Klatzkin & Company LLP, specializing in taxation
and business consulting in commercial real estate
Contact him at [email protected].
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