Are you a commercial property

owner?

Ta x R e d u c t i o n E x p e r t s

Bonus depreciation can help you Reduce Income Taxes!

WHAT IS BONUS
DEPRECIATION?
Bonus Depreciation is a conservative, IRS-defined approach for
reducing or eliminating your federal incomes taxes.

Bonus Depreciation BOTH reduces and defers state and federal

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income taxes.

It reduces income taxes by converting ordinary income to capital

gains.

It defers income taxes by increasing depreciation in the first year

of ownership.
WHAT IS DEPRECIATION?

An accounting tool which allows a portion of your asset value to

be deducted each year from your generated income, thereby
reducing your net income and resulting federal tax burden.

This provides an acknowledgement of the decrease in value of

personal property and/or some real property due to wear and tear,
aging, functional obsolescence and other factors.

Straight-line depreciation allows you to depreciate your asset over

39 years for standard commercial assets, or over 27.5 years for
apartments.

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WHAT IS DEPRECIATION?
Let's consider a small office building

Purchase Price Land Value Depreciable Basis

Annual Depreciation
$2,000,000 $400,000 of Improvements
$41,025 ($1.6M / 39 years)
$1,600,000

When filing your income taxes for the ownership entity of the asset, you would be able to deduct $41,025 in depreciation from generated income.
You would effectively save over $15,000 in taxes (based on a 37% tax bracket) by utilizing straight-line depreciation.
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Cost Segregation breaks out the components

of an asset into the appropriate depreciation
WHEN COST SEGREGATION
life span, allowing for shorter recovery periods
and accelerated depreciation.
COMES INTO PLAY
It involves parsing the asset into 5, 7, and 15 year
depreciation periods, with the remaining long
life assets being broken out into the requisite
Units of Property
 CONSIDERING
THE PREVIOUS EXAMPLE

Purchase Price $2,000,000

Land Value $400,000
Depreciable Basis of Improvements:
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5 Year Assets $192,000

7 Year Assets $8,000
15 Year Assets $208,000
39 Year Assets $1,192,000
Annual Depreciation $80,868

That’s roughly DOUBLE the depreciation you can expect from

straight-line depreciation, and could lead to bottom line tax
savings of almost $30,000 in the same 37% tax bracket.
FINALLY, THESE ARE THE
RESULTS WHEN BONUS
DEPRECIATION STEPS IN!

Any commercial, for-profit asset placed in service or

purchased after September 27, 2017 can be depreciated
by 100% of the value in the first year of ownership i.e. for
any portion of the asset with a depreciation-life of
20 years or less

For most commercial properties, O'Connor typically find

assets with a depreciation life of 5 years, 7 years and 15
years, along with the 39 year depreciation life, during the
course of our cost segregation studies.

Assets found in those shorter depreciation life categories

can be depreciated 100% in the first year of your ownership
of the asset.This can amount to between 25% and 45% of the total asset value, depending upon our findings during the site inspection!
CONSIDERING THE PREVIOUS
EXAMPLE
Purchase Price $2,000,000
Land Value $400,000
Depreciable Basis of Improvements:

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5 Year Assets $192,000
7 Year Assets $8,000
15 Year Assets $208,000
39 Year Assets $1,192,000
First Year Annual Depreciation $408,000

This is about 10 times the first year depreciation available via

straight-line depreciation, and more than five times from
standard cost segregation! In a 37% tax bracket, that equates
to just over $150,000 in positive bottom line impact
Are you interested in taking advantage of the new tax laws, protecting
your bottom line, and maximizing your cash flow, act now.

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