Prepare Your Building Owner Clients For Next Tax Season.

• Author: Grant, David

Many businesses that own real estate have been missing out on millions of dollars in current federal and state income tax deductions because they have underdepreciated their assets--many short-lived personal property assets have been placed into long-lived real property categories.

A unique classification strategy called a cost segregation analysis may be a new service you can provide your clients who might be missing out on substantial tax savings. To determine if cost segregation analysis is the right service for your clients, ask yourself the following questions:

* Would your clients benefit from accelerating depreciation on their real estate holdings?

* Have they either purchased or constructed property after 1986?

* Is the cost of their property at least $750,000?

* Do your clients anticipate retaining such properties for at least the next few years?

Cost segregation analysis is a great client service for any CPA who answers "yes" to all of these questions. It can provide your clients with huge benefits by accelerating depreciation on previously underdepreciated property. However, because of the complicated nature of the service--there are strict IRS requirements and the service may require the services of engineers and appraisers--few CPAs offer their clients a cost-segregation study.

How it works

According to IRS revenue ruling 99-49, a taxpayer may request an automatic change of accounting method to claim prior year depreciation that was not taken or that was taken at a lesser amount. This missed depreciation can be taken over the ensuing four years. In addition, the segregation components continue to be depreciated over shorter lives going forward. For clients with real estate currently under construction, a cost segregation analysis could...