High-Rise Office Building Cost Segregation Case Study
One of Capstan’s CPA partners had a client with a skyscraper office building in a major metropolitan area. The entire building was occupied by a single tenant who had made the owners aware that they intended to vacate within one year. As a result of the impending vacancy, the owners were looking at multiple options for the asset. Given the bullish multi-family market, we reviewed all possibilities. One was to demolish the building interior and convert it to a multi-family residential layout. However, the owners wanted to maximize immediate benefits while laying the groundwork for future opportunities that could require other tax strategies. They consulted Capstan in the hopes of accomplishing both goals.
Discovery of the client’s current needs while recommending strategies is a critical step. Capstan first recommended an immediate High-Rise Office Building Cost Segregation Study in order to maximize depreciation deductions from year one. Due to the property’s uncertain future, Capstan engineers also recommended a thorough Unit of Property. The goal was to further classify assets in line with the new Tangible Property Regulations. The end result, to accelerate depreciation. Assets that could be written off if the building were re-positioned in the future were documented.
This property was the largest office building the Capstan team had ever assessed, and the sheer scope of the project was challenging. Furthermore, the client needed results very quickly to assess their strategy and the impact of the tax solutions.
The lead Capstan engineer performed a thorough assessment of the property, blending speed and efficiency with Capstan’s methodical precision. The immediate results were extraordinary. Capstan was able to accelerate the depreciation of more than $30 million into personal property. This resulted in an immediate tax savings north of $12 million.
Capstan advised a thorough Unit of Property analysis and a Cost Segregation Study. The Capstan team provided the client with the most accurate and complete assessment of all assets prior to any future demolition. That assessment positions the client to take advantage of partial asset disposition in the future. In addition, if the building is demolished, there will be significant future tax savings.
Upon completion, “The Capstan Warranty,” was issued. This warranty provides the client with audit support up to the field agent level at no additional cost should the project ever be audited by the IRS. In addition, Capstan remains available to help the client in reviewing Partial Asset Dispositions (PAD election) should they decide to reposition the property.