Strategies for Maximizing Tax Savings for Real Estate Companies: Anchin’s Cost Segregation Roundtable

Anchin hosted a roundtable event on May 2, 2024 that featured various topics surrounding cost segregation and other tax benefits for real estate owners. This interactive event, led by industry leaders Ryan Paquin, Director and Leader of Anchin’s Cost Segregation Group, James Lockhart, Partner in Anchin’s Real Estate Group, and David Diaz, Partner at Walker Reid, provided a comprehensive understanding of how cost segregation can optimize tax savings and enhance real estate investment strategies.

Here are some of the significant takeaways from the event:

The Value of Cost Segregation

Cost segregation studies provide real estate companies with a strategic approach to optimizing savings by accelerating depreciation schedules and identifying additional deductions.

• When a property is purchased or newly constructed, the asset is assumed to be comprised of entirely real property carrying a longer life and depreciated over a straight-line method. Cost segregation accelerates depreciation from a real property life of 39 or 27.5 years to 5-, 7-, or 15-year lives using an engineering-based study.
• A cost segregation study can result in an immediate increase in cash flow, as it allows a portion of the property to be shifted to a different asset class bearing a shortened depreciable life.
• At its core, cost segregation is a strategic tax planning tool that allows property owners to frontload depreciation deductions, thereby reducing taxable income and potentially deferring tax payments.
• Rather than depreciating the entire property over several decades, cost segregation identifies specific components that can be depreciated sooner.

It is important to note that timing is crucial when considering cost segregation studies. If a property is likely to be sold in the near future, a cost segregation study may not be the most advantageous option. However, for properties held over a longer period, a cost segregation study can offer significant tax benefits over time. By maximizing tax benefits through cost segregation, companies can enhance their cash flow, improve their bottom line, and strengthen their investment portfolios.

Renewable Energy Incentives

The Inflation Reduction Act of 2022 has introduced several provisions to help reduce energy costs and promote cleaner energy sources.

• The Act provides federal tax credits and deductions to incentivize energy efficiency and establishes tax incentives ranging from 30% to upwards of 50% for renewable energy projects.
• One of the most notable items is the opportunity for building owners to cash in on up to $5.00 per square foot for integrating energy-efficient components such as HVAC systems, interior lighting, and building envelopes.
• A new “direct pay” provision allows tax-exempt entities to monetize applicable tax credits, further encouraging investment in renewable energy. These incentives reduce energy costs and decrease demand as we transition toward cleaner energy sources.

By leveraging cost segregation studies and staying informed about legislative changes, real estate companies can maximize tax savings and strengthen their investment portfolios, ultimately driving long-term financial success.

Once again, a big thank you to all our participants at our recent roundtable. Your input and insightful questions made the conversation impactful. If you have any further questions about cost segregation, renewable resources, or how these strategies can benefit real estate owners, please don’t hesitate to reach out to James Lockhart, Partner in Anchin’s Real Estate Group, Ryan Paquin, Director and Leader of the Cost Segregation group, or your Anchin Relationship Partner.