Improving US real estate returns with cost segregation

Ivan C. Roten and Jarrod G. Johnston

Journal of Property Investment & Finance, 2019, vol. 37, issue 4, 334-344

Abstract: Purpose - US taxing authorities allow property investment to be separated into components. The purpose of this paper is to demonstrate how the classification of property affects the amount and timing of depreciation. Increased and accelerated depreciation increases after-tax cash flows and investor returns. Design/methodology/approach - This paper explains traditional methods to analyze real estate investments and introduces modified methods that include the effect of taxes to improve the estimate of the potential return to the investor. Commonly used property classification methods are evaluated and projections are used to demonstrate the impact on investor returns. Findings - Modified methods may improve return estimates and appropriately classifying property improves investor returns. Practical implications - After-tax cash flows should be used to analyze potential real estate investments and properties should be accurately classified to maximize returns. Originality/value - This paper demonstrates how to analyze real estate investments and maximize returns.

Keywords: Taxation; Asset valuation; Real estate; Property valuation; Cost segregation; Investor returns (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jpifpp:jpif-02-2019-0021

DOI: 10.1108/JPIF-02-2019-0021

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