Net Present Value Real Estate:
MEASURING THE BENEFITS OF A COST SEGREGATION STUDY
Net Present Value calculation is used to determine the return on investment of a purchase, project or study over its lifetime. NPV calculations are often used during an analysis of the net cash flow benefits of a Cost Segregation study.
A Cost Segregation study identifies real estate assets that qualify for accelerated tax deductions through their reclassification to shorter recovery periods. For many clients, the net present value (NPV) savings generated by the study equals an amount large enough to make the cost of the analysis a worthwhile investment.
If you have used a net present value calculator or table to estimate whether you have a positive NPV, you may already know if a Cost Segregation study is right for you. In fact, while tax savings vary, based on calculations involving your overall tax situation and the specific assets in any given property the positive benefits of a Cost Segregation study may be quite significant.
- Case study data indicates that as a general rule, you can calculate that
approximately $150,000 to $200,000 in net present value tax savings can be generated for each $1 million of
- Because many states follow the federal rules regarding depreciation, it is also possible to save money on
state tax returns.
A POSITIVE NET PRESENT VALUE EQUALS TAX BENEFITS
FOR YOUR PROPERTIES
If your net present value calculation is a positive one, you may receive these benefits:
- Maximized annual tax deductions for depreciation
- A reduction in total tax costs based on the effects of accelerated depreciation
- An increase in cash flow from the immediate net present value of the Cost Segregation study
- A reduction in local property taxes (applicable for specific states)
- Capital cost savings resulting from the ability to rapidly depreciate specific expenditures
- An improvement of shareholder value and overall health for the property’s holding company based on
increased cash flow
Often times, clients uncover significant positive net present value real estate process through a Cost Segregation study, allowing recovery of money that had been left on the table and increasing cash flow. To discover if your property is eligible, contact Madison SPECS for a free initial evaluation.