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Tenants
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Although cost segregation is most commonly thought of as a strategy used by building owners, it can also be a great tool for tenants. If you’ve paid for improvements to your space and pay taxes you can probably benefit from a cost segregation study; assuming the benefits from the study are enough to justify the fee for the analysis.
Cost segregation generally starts to make sense for tenants when the depreciable cost basis of the improvements approaches the $250,000 range which is quite low in comparison to the $1 million plus range for buildings. This is primarily due to the fact that a study performed for a tenant is focusing on a specific area and does not include the base building elements which make up the majority of the non-qualifying (39-year) costs. Therefore, the percentage of costs allocated to a shorter recovery period (typically 5-year) is proportionately higher than in a study performed on an entire building.
The amount of costs that qualify for a shorter recovery period will also be driven by the type of finish and the specific business being conducted in the space. The best candidates for cost segregation when it comes to leased space include…
• Medical Suites
• Dental Practices
• Law Firms
• Retailers
• Restaurants