Apartment Complex Owners - Unlock the Potential Tax Savings!

[Julio Gonzalez]

If you own or have invested in an apartment complex, are you familiar with cost segregation? If not, you could be missing out on thousands or even millions of dollars (depending on your property) in tax savings!

Owning an apartment complex can come with complex tax issues. As an investor and property owner, it’s important to be aware of these challenges and take steps to mitigate them.

One of the most common issues that I see is improper depreciation of the building and its components. Apartments are supposed to be depreciated over 27.5 years according to MACRS. However, there are components of the building such as carpeting and appliances that have accelerated depreciation schedules. If these components aren’t identified and properly depreciated, they are being depreciated over 27.5 years resulting in a higher tax bill now.

Through the utilization of cost segregation as a tax strategy, apartment complex owners can reclassify certain components of real property to personal property. Personal property is depreciation over a much shorter useful life than real property, therefore the reclassification can result in a significant reduction in taxes paid. The main benefit from a cost segregation study is the potential tax savings. Here’s a list of other tax benefits.

Apartments are just one type of commercial property that has the potential for great tax benefits from a cost seg study as they typically have a large percentage of assets that can be reclassified.

Here are two examples of a cost segregation study - one on a $13.9M apartment complex located in Westerville, OH and the other on a $$26M apartment complex located in Upstate New York.

As you can see, cost segregation studies can offer significant tax savings. If you’re an apartment complex owner and have had a cost segregation study, tell us about your experience!