Any risk with segregating the cost for accelerated depreciation?

[Roman Rytov]

Purchased my first commercial (Industrial) building and planning to segregate the cost to accelerate depreciation. Considering engaging a 3rd party company with their engineer visiting the place. Any disadvantages with this approach? Some believe it's a flag with IRS... I read that a lot of people do it and seems clear and legit. Any thoughts? 

[Bill B.]

It’s perfectly acceptable and legit business practice. Only problem is if you plan to sell without a 1031 exchange you’ll face a 25% recapture tax rate. So if your current tax rate is below 25% (like most people) you’ll owe more than you save. The point is the free use of the money in the meantime. That was worth a lot more when interest rates were higher. 

Even if you do a 1031 in he future this process means you’ll carry forward less basis so you’re future depreciation will be lower. But if you plan to die owning it and you don’t think you’ll make it to the end of the normal depreciation period it’s a great deal. 

Ps. It’s also a slightly bad deal if you believe tax rates will be higher in the future to try to pay off Our debt or prevent social security Medicare cuts. (The you’re getting tax savings today at lower rates but giving up future tax savings at a higher rate.)