We completed a 1031 exchange into TICs.

1. How do I handle the property reserves on the properties we bought?

2. What can you tell me about the cost segregation analysis. Each property had it done and I know it benefits me. What do I do with it?

One property example is this

Class                    Depr Meth                            basis

5-year                    200% db                             $1,392,284.30

7-year                    200% db                              $149,957.87

15-year                  150% db                              $3,367,125.66

39-year                   St. Ln.                                 $19,452,432.17

Building Total                                             $24,361,800.00

Land                     n/a                                   $6,000,000.00

total project cost                                        $30,361,800.00

These are just totals on one page of the report. Of course I relize I only have a fraction of this property :-)

Thank you again for your help,

Diane

Hi Diane,

I just noticed that this post was never responded to. 

 The reserves on the TICs that you acquired are not part of the replacement property cost and should not be treated as replacement cost value. 

The cost segregation study allows you to "carve out" certain components and depreciate them over a shorter period of time rather than the standard 39 years for commercial real estate.  The cost segregation analysis provides the breakdown needed to allocate the various asset components into categories so that you can accelerate depreciation and shelter additional cash flow with the accelerated (increased) depreciation. 

The one potential down side is that when you sell the property in the long run you must match real estate for real estate and then the segregated components with like-kind segregated components that are now being treated as personal property interests.  It can complicate future 1031 exchanges, but can also shelter additional cash flow today.  It is a trade off and is not easy to determine whether you should take advantage of the cost segregation study or to simply depreciate the property as reall estate over 39.5 years.