Overview

Real estate capitalization studies help determine which construction, building improvement, and acquisition costs should be capitalized and over what life they should be depreciated. Depending on your holdings, tools like cost segregation studies, repair studies, and fixed asset reviews can be utilized to maximize benefits. Through a capitalization study, a company can optimize their tax deductions, accelerate tax depreciation, and increase cash flow on their investments, including acquired, self-constructed, and leasehold improvement property.

At Stout, we help design and implement a capitalization plan that aligns with your immediate and long-term tax goals. Proactively evaluating your current real estate portfolio can position your company to optimize tax deductions when needed most. Our team is equipped to analyze your fixed assets to uncover missed opportunities and assess whether strategies like cost segregation, repairs, or direct reclass studies align with your long-term tax goals.

Benefits

Real estate capitalization studies provide significant federal taxation benefits by using immediate expensing, shorter recovery periods, and accelerated depreciation methods for computing depreciation deductions. These accelerated deductions can be utilized to strategically offset taxable income.

Cost segregation analyses, alone, typically reclassify 10% to 40% of the overall construction or acquisition cost to shorter recovery periods. The reclassification percentage is driven primarily by property type as illustrated below.

Our Services

Cost Segregation Studies

Cost segregation studies are the analysis and allocation, or reallocation, of construction or acquisition costs amongst various building systems and components. Most commonly, cost segregation studies are performed to identify and quantify building and site components eligible for accelerated depreciation methods for federal income tax purposes.

Repair Studies

Tangible property regulations, or repair regulations, help distinguish between capital expenditures and deductible repairs for real estate improvements, enabling increased deductions for certain building improvements and tenant allowances. Repair studies can provide significant deductions for the current tax year and affect taxable income in future years. Our team is prepared to evaluate the potential benefits and future impact from implementing the tangible property regulations on your specific portfolio.

Fixed Asset Optimization

Complexity regarding depreciation methods and class lives can lead to confusion and incorrect depreciation of building-related improvements. We are equipped to identify these missed real estate capitalization opportunities through a review of the tax fixed asset listing. Past expenditures that are eligible for accelerated depreciation through reclassification can be corrected, with catch-up deductions utilized in the current tax year.

Our Approach

Our goal is to provide you with a comprehensive view of the advantages and disadvantages of the various real estate capitalization opportunities available to you.

1. Meet with your team to develop an understanding of your overall strategic goals regarding taxable income and deductions
2. Identify the capitalization options available to achieve your taxable income goals, through a detailed review of your fixed assets
3. Estimate multi-year projections of the impact to your taxable income for each of the various identified opportunities
4. Analyze specific projects that best achieve your comprehensive tax planning goals
5. Update multi-year depreciation projections based on the actual, implemented analysis results
6. Update projections for unused opportunities for future tax planning if additional deductions are needed

Why Choose Stout

Our team understands the distinct advantages and complexities that different capitalization studies, such as fixed asset reviews, repairs, and cost segregation, can provide to a property owner. With experience ranging from single-family rentals to some of the largest entertainment venues in the world, our team is equipped to optimize the tax benefit from your real estate investments. Our practices and methodologies conform to the Tangible Property Regulations and IRS Cost Segregation Audit Techniques Guide, and our professionals have successfully defended their work before the IRS.

Who We Serve

Capitalization advisory services can provide meaningful benefit to taxpayers in all industries, including:

• Real estate (including REITs)
• Entertainment (casinos, theme parks, theaters, stadiums, arenas, etc.)
• Hospitality
• Retail & restaurants
• Manufacturing
• Residential rental (including apartments, student housing, and assisted living/nursing homes)
• Family offices