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Appreciating Depreciation for Real Estate Brokers

Cost Segregation for Real Estate Brokers

You can become a Tax Hero to your current and potential real estate clients. We’re talking about a hero status so big that your clients think you should start wearing a cape.

And, you don’t need to become a tax professional to be a Tax Hero. Just make your clients aware of one simple tax code that most are missing—100 percent Bonus Depreciation.

In the first year of ownership, this one change potentially saves commercial building owners $40,000 – $100,000 per $1 million of a building owned or purchased. It’s like buying a building and getting a ten percent off gift card.

To become a Tax Hero, say this to your client:

  • “100% Bonus Depreciation.”
  • “When you buy a building, about 20 percent of the building qualifies for 100% depreciation.”
  • “It’s worth about $60,000 per million in the first year you own the building.”
  • “I have a specialist that you can talk to, I’ll send you their number.”

That’s it. Congratulations on achieving Tax Hero Status! YOU EARNED IT!

Now, overachievers would want to know how and why this new tax code works. We’ll try and keep it simple.

  • In the new tax code, Congress wanted to encourage business owners to buy more to stimulate the economy.
  • So, on purchased items that have to be capitalized and depreciated over a period of 20 years or less, Congress said you could have all of your depreciation deductions in the first year.
  • It is like everything went on sale.

Every tax professional knows how to take these deductions on items like equipment, computers, furniture, and fixtures but not all know how to get 20 percent of the building to qualify for this same bonus depreciation in the first year. This is where you might want to recommend a cost segregation specialist.

What is cost segregation? Instead of selecting the old straight-line depreciation method that views the building as one whole piece and depreciates the building over 39 years. Owners can select a depreciation method that groups or “segregates” the values of the parts and pieces of the building into categories that depreciate on a 5-, 7-, 15- and 39-year basis. About 20 percent of the building fits into the 5-, 7-, and 15-year categories.  And remember, Congress said that anything purchased with a depreciable life of 20 years or less could be depreciated 100 percent in the first year. That averages $40,000-100,000 of cash flow in the first year per $1 million of a building.

Cost Segregation Services, Inc. —CSSI®, has “Cost Segregation Specialists” who perform an engineering-based study of the building by identifying and valuing all the parts and pieces that qualify, photo document the building, and supply the numbers that allow a tax professional to file for these deductions.

We believe a long shiny cape would look good on you. Contact us to learn more about working with our cost segregation specialists.


By: David Deshotels, Executive Vice President

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