NEW YORK—Property owners may well be sitting on a nice tax break that they have no idea about. A typical commercial building is depreciated over 39 years, but what most people don't know, says Jerry Kootman of Cost Recovery Solutions, is that 15 to 30 percent of the depreciation can be recovered within 5 to 15 years.
“Probably 85 percent of all buildings here [New York City] have not taken advantage of cost segregation,” Kootman said. “And it's permissible, it's not aggressive … everything is upfront.”
The IRS wrote a 115-page memorandum explaining the legitimacy of the law five years ago, he said.
Typical items that can be claimed back within five years include flooring, accent lighting, wall coverings, dedicated electrical, dedicated plumbing, and if it's a café, the equipment also comes under this rule. Items such as parks, asphalt, and parking can be depreciated within 15 years, Kootman said.
The depreciation applies to buildings including warehouses, multi-family homes, office buildings, hospitals, race tracks, and golf courses.
Taking advantage of the depreciation can reduce or eliminate state and federal income tax, Kootman said. Increased cashflow, a better return on investment, and a higher building value add to the reasons to examine the law more closely, he said.
“It's like a gift.”