Abandonment Study Yields Tax Deductions
So, what is an Abandonment Study?
An abandonment study is a detailed engineering analysis of building components. It is used to determine individual component costs being retired or abandoned. This is typically when renovations or improvements are performed during the normal ownership period of buildings or TIs. TIs are tenant improvements.
Why is an Abandonment Study Needed?
An abandonment study provides an IRS-defensible position for writing off the adjusted basis of retired assets. This write-off can be significant. Indeed, the data contained in the study could also support insurance savings or claims if losses are incurred. In addition, an abandonment study can be used to eliminate “ghost” assets. Ghost assets are those on the books long ago demolished. Most businesses write off the adjusted basis of a fixed asset when that asset is retired. It is common practice. So why is this strategy over-looked with what is often their largest fixed asset…real estate?
An Abandonment Study is needed because…
Most do not have the cost details needed to properly support this approach. Or, rather, they do not possess the qualifications to properly apply the data available. An abandonment study will provide the details and documentation needed to properly write off abandoned assets once buried in the cost of the building. An abandonment study can generate significant additional depreciation for the owner of commercial real estate. By increasing depreciation, substantial tax reduction can be effected. An abandonment study allows any demolished assets to be deducted in the year incurred.
Are there rules applicable to an Abandonment Study?
The IRS provides specific rules pertaining to this application. Details and timing are critical. An engineered abandonment study includes the detailed documentation needed to claim these valuable deductions.
Can an Abandonment Study be performed with a Cost Segregation Study?
Most assuredly so. This analysis can definitely be combined with a cost segregation study. In fact, the combination of an abandonment study with a cost segregation study can maximize the depreciation available on 100% of the building components. This leaves no stone unturned in uncovering qualifying assets for abandonment or accelerated depreciation.
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