As a company with services to offer, we are (as are all other businesses) inherently always in the “sales mode”. This is what it takes to stay ahead of the pack, or at least to be in the race, in today’s environment. No matter what place or setting in which we find ourselves, our antennas are tuned for the next opportunity to ‘bring home the bacon.’
This blog, however, is called ‘The Trusted Advisor’. It’s titled this way because we view ourselves as the trusted advisor to commercial real estate investors. As a trusted advisor, our role is to objectively present all sides of the business opportunity and hopefully steer our client in the best direction for the client’s bottom line, not ours. I’ve often advised clients not to move forward with one or other of our services when I felt it wouldn’t produce the results they were looking for or generate the proper return on their investment.
Being that I work primarily in the area of cost segregation, I spend much of my day talking, thinking and discussing the great value and virtues of cost segregation for the real estate investor. Accelerated depreciation. Tax benefits. Cash flow. Feasibility analysis. This is my daily jargon. (Time for me to get a life, ya think?). But I’d like to spend the rest of this blog telling you why you shouldn’t be contracting us for our cost segregation services.
No, I haven’t turned against my company. And I still greatly believe in cost segregation as an income tax tool, but the truth is that it’s not a perfect fit for all investors and owners. This bit of knowledge may save you and us the time and effort wasted vetting if your property is a good candidate for a cost seg study. And it certainly beats you actually doing a cost segregation study only to realize afterward that you would have been better off not having done it.
So what categories of people should NOT be doing cost segregation study? Here’s a short list. This blog doesn’t afford the space to elaborate on each, and there may be situations that override these general rules, but trust me that, in most cases, anybody who identifies themselves as one of these is better off depreciating their property long term.
Don’t Do A Cost Segregation Study if….
• You, or your investors, have enough tax deductions or losses and are not currently in a taxable position (not necessarily for a specific property but on your bottom line).
• You plan on selling the property within five years of doing the cost segregation study.
• You, or more likely your investors, are non-profit or any other non taxable entity.
• You got the property at such a good deal that much of the potential savings will be eroded after taking this discount into account.
• You already owned the property for seven years and haven’t done any significant renovations since then.
• You are of the opinion that it’s better to give your hard earned money to the government rather than keep it in your pocket and have it work for you for a few extra years. (Warren Buffet, I’m talking to you….)
As I said before, these are just general rules and there may be mitigating circumstances under which it may still be worthwhile to do a cost segregation study which is why you should always discuss these issues with your accountant and a cost seg expert. This list should, however, be a starting point for those discussions.
If you DON’T fit into any these categories, however……………. Oops there go those pesky antennas again.