Our mission here at Terravet Real Estate Solutions is to support and inform property owners so that they can maximize their real estate value. This time, we focus on understanding cost segregation studies. Terravet’s Chief Veterinary Development Officer, Peter Kilkelly, is joined by experts in the field, Jake Sciaudone and James Pillischafske from KSM CPAs & Advisors.
Join Peter, Jake, and James as they discuss the ins and outs of cost segregation studies.
Watch the full interview for in-depth insights and examples.
Grasp the basics of a real estate cost segregation study; read the main snippets and highlights of the interview here for a quick overview of the topic.
First thing is first, Peter wants to know:
“What is a cost segregation study?”
[0:37 – 1:44] Jake explains: “A cost segregation study is a tool that can be utilized to effectively lower your current year income taxes. The whole goal of a cost segregation study is to maximize your depreciation in the first year (or couple of years) relating to your building, whether that’s new construction, acquisition or renovation.”It turns out a cost segregation study isn’t for everyone, so Peter asks:
“When does a cost segregation study make sense?”
[1:46 – 3:17] James explains: “The simple answer is anytime you buy, build or renovate a commercial building, it’s probably worth at least exploring it to some extent.Usually, if we put a hard dollar amount on it, it gives you the most bang for your buck when those costs are over $1,000,000, but it’s definitely still worthwhile to look even if you’re spending less than that on a smaller renovation or a small addition.”
It is important for all property owners to know exactly what they can get out of this process.
“What are the benefits of a cost segregation study?”
[3:18 – 6:25] Jake: “The main benefit is the saving of taxes… Now, something to note about a cost segregation study is that it is all a time to value of money play, and what you see here is, at the end of the day, you’re going to pay the same amount of taxes over 39 years. But you’d rather save $120,000 now on your taxes rather than over the span of 39 years because a dollar’s worth more now than it is 39 years from now. So that’s the main benefit.”Now it is time for the all-important question that all veterinary real estate owners want to know:
“Why are cost segregation studies great for veterinary real estate?”
[6:26 – 9:35] James: “… There’s a few reasons why cost segregation is so beneficial for these specific types of properties. The first is there’s at least a little bit of lane improvement allocation, so the 15-year life bucket that Jake was referring to earlier. Some things that fall into that category are parking lots or sidewalks. So, when you think about these types of facilities, there’s usually at least some kind of decent size parking lot. For any people, any visitors or guests, and then specific to the vet field a lot of times we see a dog run or a fenced-in area, something specific to that business that would also fall under the lane improvement category.”Understanding the process is key to get the most out of the study:
“What is the process like, what is involved?”
[9:36 – 12:20] James: “The due diligence phase is important because we want to make sure you’re going to benefit. We don’t try to sell you on something that you’re not going to benefit from. So, as we talk about having income to offset any potential losses, we want to make sure to take a step back for a high-level view and make sure a cost segregation will benefit you in the short and long term. So, we do that through reviewing the cost documents. For construction or innovation, we want to see how much you spent. How did they break out those costs? What do we think that estimated benefit would look like?”To prepare you for the process, Peter finds out what questions you should have at the front of your mind:
“What are some questions that landlords should ask their accountants before performing a cost segregation study?”
[12:21 – 15:38] Jake: “A couple of things to talk to your accountant about would be if you are making a valid grouping election. So typically, we see real estate held in one entity and operations held in another entity, and in order to utilize losses from real estate, you either need to be a real estate professional, or you need to have a valid grouping election to use those real estate losses to offset any operational income.”This discussion is packed with valuable information to help property owners, especially in the veterinary field, make informed decisions about cost segregation studies. Don’t miss out on the detailed examples and expert advice — watch the full video interview for an in-depth understanding of how you can achieve substantial tax savings.
To find out how Terravet can support you in your real estate goals, contact us.
For additional guidance on cost segregation analysis, contact KSM today.