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With commercial occupancies falling along with rental rates and commercial landlords looking to scrap every penny, Natalie Feldman, a broker associate with the real estate firm Eisner, Feldman & Grant Inc., thinks a number of owners are missing a nice cash injection from Uncle Sam.
Feldman suggests property investors look into cost segregation and energy credits as a way to pay less income tax and even get back money landlords paid to the IRS in prior years.
Cost segregation requires a specialized engineering inspection of a building that reclassifies certain portions of the buildings, such as the carpeting, electrical system or equipment, for a quicker depreciation.
“Usually the cost to produce the report is from 6 to 11% of the value of the savings,” Feldman says. “About the only time it doesn't make sense is if an investor plans to hold a property for a short amount of time — something like 18 to 36 months, and nobody is selling now if they don't have to.”
However, Feldman warns that property worth more than $10 million gets heavily scrutinized by the IRS for tax refunds for previous overpayment, and that property owners should always seek out an experienced engineering firm for the cost segregation.
Energy credits are a tax deduction of up to $1.80 a square foot that property owners can claim from the IRS based on the energy efficiency of their building. Feldman says that most current HVAC and lighting systems qualify, and that the equipment doesn't have to be up to the LEED efficiency level. Even more importantly, builders or architects may qualify to receive the energy tax credits for projects they do for non-profits clients.
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