Depreciation is one of the biggest tax benefits of owning real estate, and it’s also one of the most misunderstood. In this episode, Tom Brodie, National Account Executive with CSSI – Cost Segregation Services, explains where investors most often go wrong.
Prefer to listen? Hear this episode on Spotify.
Common Depreciation Mistakes
- Depreciating the whole building as one asset. Spreading everything over 39 years (or 27.5 for residential) ignores components that qualify for much faster schedules.
- Overvaluing the land. Land can’t be depreciated, so assigning too much of the purchase price to land shrinks your deductions. Tom covers this in When Overvaluing Land Can Cost You Thousands.
- Assuming it’s too late. Missed depreciation on past purchases can often be caught up in the current year without amending prior returns.
- Assuming the property is too small. Properties worth $200,000 or more can be good candidates, including residential rentals.
Getting It Right
A cost segregation study uses engineering analysis to identify the parts of your property that qualify for 5, 7 and 15-year depreciation. That means larger deductions sooner and more cash flow for your next investment.
Example result: an office building purchased in June 2019 for $4,811,095 (less land) produced a first-year tax savings benefit of $343,306. Results vary by property.
See What Your Building Could Save
Tom will run a free, no-obligation estimate on your property, so you’ll know what’s possible before you commit to anything.
Prefer to talk now? Call Tom at 713-906-3710.
I’m a two time Texas A&M graduate (BBA: 1981 & MBA: 2001) who worked for Shell Oil Company for 26 years. I learned the importance of communications – both verbal and written, as well as problem solving skills. With experience ranging from finding intra-company billing errors to defining customer requirements in global budgeting software to teaching people how to scuba dive and take pictures underwater. Tom Brodie Bio
