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Speed Up Business Building Depreciation

Updated: Feb 1, 2023

Recently, I’ve been “encouraging” my clients saying, “We are now into Jimmy Carter the second.” During the first Jimmy Carter, we ended up with 22% inflation, doubled gas prices, boycotted Olympics, US Citizens held hostage in a Middle Eastern country, small bank failures, etc. Are you starting to have a feeling of déjà vu yet? The best way to increase your wealth during such an inflationary period is to own real estate heavily leveraged with debt. You end up paying the debt off years later with cheaper money and the fair market value of the real estate goes up way faster than inflation.

For businesses, owning their own business property is one of the best ways to own real estate, leveraged with debt. The downside is the normal depreciation rate on a business building takes 39 years to recover your cost as a deduction against taxable income. You may sell or close your business before 39 years have passed!

I’m here to tell you, there is a way to significantly increase the rate of deducting a large portion of the building. It’s called, “Cost Segregation.” It allows you to break off more rapidly certain portions of the building, such as the parking lot, the HVAC units, the roof, flooring, electrical lighting, plumbing fixtures, etc. Sometimes over as short as 7 years.

The IRS is never happy when a taxpayer finds a way to save taxes, and this is no exception. Thus, the right way to do this is to pay a rather large fee to a specialized professional who provides you with a “Cost Segregation Report.” It is important that you choose a professional who has a reputation with the IRS in following their strict guidelines or you risk the IRS rejecting the Cost Segregation findings.

Here is an example: Let’s say you purchased a $1 million building. Your annual depreciation would be $25,641. If got a Cost Segregation Report, showing almost ¼ of that building now depreciated over 7 years and another ¼ over 15 years. Your Depreciation Expense for the first 7 years of owning the building now jumps up to $65,201, the next 7 years would be $29,487, then the final 25 years would be $12,820. What does that mean? You get to use the tax savings early on in the purchase of your building in your business more successful. It’s like getting a small interest free loan from the IRS. YES!!!

Warning. When you call around to get quotes on the Cost Segregation Study, you will hear some quotes that might cause your jaw to drop to your desk. Pick your jaw back up and negotiate. You don’t have to accept the first quote you get.

Did you hear? Prov 4:25 says, “Let your eyes look straight ahead.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at Also on Facebook.

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