Apartment Building Owners Can Reduce Tax Liability And Gain Savings With Cost Segregation

Picture of white apartment building during the day

Owners of apartment complexes and other large multifamily properties should always be looking for ways to increase the return on their initial investments on the properties they own. One of the most common and efficient ways to do this is through cost segregation.

Cost segregation takes properties like apartments that usually depreciate over a period of 39 years and cuts the depreciation time to 5, 7 or 15 years. Lessening the time it takes to receive these tax deductions can directly impact the amount of money owners are making on properties they purchase.

Although it is unlikely that an entire building will be reclassified to depreciate over the 5, 7 or 15 year periods, this could still save investors thousands of dollars on their annual returns if a complete cost segregation study is done. This is an overwhelming increase when looking at overall investment.

How Can You Apply Cost Segregation To Your Apartment Building?

In order to apply cost segregation to your building, a cost segregation study must be performed by an engineering firm that will conduct a proper inspection of the property.

During these inspections, a building will be reclassified depending on various aspects of the apartment building. Only the actual value of the building will be considered during these inspections and land will not be classified. Any part of the building that has been renovated, expanded or acquired since 1987 can retroactively have a study performed as well.

For example, apartment buildings that have undergone certain renovations such as updated water-distribution systems, gas lines, plumbing, interior windows and mirrors, fresh cabinets, etc. can be examined during a study.

When Should A Study Be Done?

If you’ve invested in an apartment building or multifamily property and have done the following, you should consider having a cost segregation study performed on your building.

  • Purchased an existing complex
  • Invested in the construction of a new apartment complex
  • Renovated, remodeled, restored, or expanded an apartment complex
  • Paid for leasehold improvements

The study is beneficial for almost any commercial building that has been constructed, acquired, or renovated, and is done to identify building systems and components that qualify for accelerated deductions.

Here at National Tax Group, we have a team of professionals to help with your cost segregation study needs so you can feel confident you’re receiving the maximum tax benefits possible. Give us a call at (561) 257-3436 and talk to one of our specialists to find out more.

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