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The US Congress has been generous with its incentives to invest in real estate and improvements. Modified Accelerated Cost Recovery System (MACRS) was instituted in the Internal Revenue Code of 1986. MACRS provides guidance to the allocation of specific building components for reclassification from Section 1250 real property to Section 1245 personal property, with depreciation lives of 5, 7 and 15 years. These allocations analyses, known as “cost segregation”, can provide a great deprecation and therefore cash flow benefit to property owners and tenants who pay for their own tenant improvements. Marshall & Stevens has been providing cost segregation to our clients since the beginning of MACRS and has provided great results to our clients by doing the analysis the right way – the engineering- based approach.
Imagine the change in your cash flow by moving 20%, 30%, 40% of your depreciable basis out of a 39.5 year depreciable life (27.5 years for multifamily) into 5, 7 and 15 years. The savings can be huge!
Several times since the initiation of MACRS, Congress has provided greater incentives to invest in real estate and tenant improvements by providing windows for bonus depreciation, in essence, turbo charging the accelerated depreciation provided in MACRS. We are in one of those bonus situations today.
More good news – you don’t need to have had a cost segregation analysis performed when you first purchased or improved a property. Retroactive analyses are permitted and do not require a restatement of prior tax filings.
The Wind Production Tax Credit (PTC) was first enacted in 1992. The Solar Investment Tax Credit (ITC) was originally established in 2005. Congress has extended the expiration date of both incentives multiple times, and may again. The Section 1603 grant program was created in 2009, to incentivize renewable energy project development during a time of economic distress. The 1603 program did not replace ITC and PTC, and 1603 is no longer available.
Applying for these ITC and PTC requires an allocation of project costs through a residual approach Cost Segregation analysis (see Treasury Regulation sections 1.338-6 and 1.338-7). The Cost Segregation analysis calculates the basis of project costs that are eligible for ITC under the guidance of Section 48 of the Code. Upon request, we provide an additional allocation of project costs into specific categories per IRC 1060.
Our experience in this arena of cost segregation includes analyses of solar, wind, energy storage, fuel cells, geothermal and biomass projects.
Our Real Estate Valuation team collaborates with our internal multi-disciplinary professionals to provide the value analyses and fresh independent opinions to fiduciaries, financing sources and investors for public and private company transactions.
Marshall & Stevens performs hundreds of valuations and cost segregation analyses every year for renewable energy project developers, sponsors, and investors.
The accelerated depreciation benefits from a cost segregation analysis on acquired real estate (or improvements for leased space) can typically pay for a material percentage of the transaction costs and/or multiple financing payments.
The accelerated depreciation benefits (tax savings) from a cost segregation analysis on acquired real estate (or just improvements to a leased space) can typically pay for a material percentage of the transaction costs and/or multiple financing payments.
The cost segregation analysis provides an allocation of a portion of 1250 real property assets to 1245 personal property, which may result in quicker depreciation of some assets on the property tax rolls.
Real estate should be looked at strategically for potential beneficial tax reporting, financial reporting, depreciation including cost segregation and bonus depreciation, financing including sale leaseback, etc.
The fair market value of acquired real estate is often much higher than the seller’s capitalized basis and the allocation between land (not depreciable) and improvements (depreciable) is often different than what the assessor has determined.
For financial reporting, the value of acquired real estate needs to be allocated to land, building and improvements, and intangible assets.
The accelerated depreciation benefits (tax savings) from a cost segregation analysis on acquired real estate (sometimes just tenant improvements) can typically pay for a material percentage of the transaction costs and/or multiple financing payments.
Real estate should be looked at strategically for potential beneficial tax reporting, financial reporting, depreciation including cost segregation and bonus depreciation, financing including sale leaseback, etc.
For financial reporting, the value of acquired real estate needs to be allocated to land, building and improvements, and intangible assets.
The fair market value of acquired real estate is often much higher than the seller’s capitalized basis and the allocation between land (not depreciable) and improvements (depreciable) is often different than what the assessor has determined.
The accelerated depreciation benefits (tax savings) from a cost segregation analysis on acquired real estate (sometimes just tenant improvements) can typically pay for a material percentage of the transaction costs and/or multiple financing payments.
Marshall & Stevens provides Fairness and Solvency Opinions, valuation analyses, investigative accounting, and expert witness services to assist public and private clients with their important transactions and litigation matters.
