An underutilized financial tool for golf properties is the cost segregation study. A professionally done cost segregation study can help recover funds through federal and state income tax savings. Any for-profit golf course, golf resort or golf community is eligible.
A quality cost segregation analysis examines the real property improvements associated with your golf property and reclassifies where applicable into shorter tax-lived 5 and 15-year property.
Without cost segregation your tax advisor must depreciate real property improvements over much longer periods of time:
• Commercial Residential Rental Golf Communities: 27.5-Years
• Golf Resorts: 39-Years
• Golf Courses: 39-Years
Using IRS approved methods, a cost segregation professional identifies and reclassifies improvements from 27.5 and 39-year real property to 5 and 15-year personal property or property supporting personal property. This reclassification can be accomplished through a number of survey and modeling methods with an engineering approach being the IRS preferred approach.
Benefits of a Cost Segregation Study are not limited to ‘new construction’. Acquired properties also qualify for accelerated tax depreciation. Acquired golf properties with Golf Course improvements, lodging, club houses, apartments, banquet halls, restaurants, other structures, and site improvements have construction components that qualify as short-lived property.
Benefit is not limited to construction, or acquisition, of an entire Golf Properties; major improvements made by the current owner of the property can also be realized. Construction of a building, expansion of a building, remodeling of a buildings or course; are also eligible for special tax treatment.
Using the engineering approach or, in the case of acquired property, the engineering and depreciation approach can create substantial federal and state income tax savings.
Qualified improvement property (“QIP”) regulations now allow for the reclassification of newly constructed/non-structural components from 39-year to 15-year depreciation as long as the improvement went into service after December 31, 2017. This regulation applies to new course construction, new building construction or interior remodeling of existing buildings.
In addition, bonus depreciation allows for 50% or 100% of 5 and 15-year property to be depreciated in the year the property was acquired or went into service. This bonus depreciation allows us to look back to year 2002 when bonus depreciation went into effect.
Reclassification of property from 39 and 27.5-year property to 5 and 15-year property along with bonus depreciation and QIP regulations may allow for more than 50% of the total construction and acquired costs to qualify for accelerated tax depreciation and special tax savings.
The tax savings, prior to engaging the cost segregation professional, can be estimated as ‘net present value tax savings’. The cost to build or acquire your property along with your current federal and state tax rate can be used to estimate the potential tax savings, also known as the estimated benefit.
For properties that went into service between 2002 through 2019 there are tax filing tools such as the ‘Amended Return’ or Form 3115 – Application for Change in Accounting Method, also known as the ‘recapture tool’, which can be used to recapture all past tax savings in the year your cost segregation study is performed.
Let us show you how we can help your course better manage your depreciation and tax situation with cost segregation analysis.