Why September Is the Right Time to Review Property Improvements

By September, many commercial property owners have a much clearer picture of the improvements completed or underway across their portfolio.

That makes this a useful time to review those projects before year-end planning gets busier.

The investor question is straightforward: What should you review now about the improvements made to your properties this year?

Start With the Projects, Not the Tax Treatment

Begin with what physically changed.

Maybe you renovated tenant space, upgraded electrical or mechanical systems, replaced finishes, improved exterior areas, added equipment-related infrastructure, or completed a larger capital project.

At this stage, you do not need to decide how every improvement should be treated for tax purposes.

Instead, build an accurate record of the work.

For each significant project, identify what was completed, when it was completed, what it cost, and what documentation is still available.

That creates a better starting point for your advisors.

Project Records Can Matter Later

The IRS Cost Segregation Audit Technique Guide places significant emphasis on documentation.

It describes a quality cost segregation study as one that uses the best available documentation to classify assets and determine costs. The ATG also states that contemporaneous documentation is the most reliable and trustworthy.

For new construction, the ATG discusses records such as construction drawings, specifications, contracts, change orders, payment requests, and vendor and supplier invoices.

That provides a practical lesson for property owners.

The best time to organize improvement records is often while the project is still familiar and the people involved are still accessible.

Connect the Cost to What Was Actually Built

Accounting records are important, but a dollar amount alone may not tell the full story of an improvement.

Suppose a contractor invoice simply says "electrical improvements."

What was actually installed?

Did the work support the building generally? Was it connected to particular equipment? Was old infrastructure replaced? Were several different types of work grouped together on the same invoice?

Those details can matter if the property is analyzed later.

The ATG describes cost segregation as factually intensive and based on tax law and engineering analysis. It also notes that studies allocating estimated costs between § 1245 and § 1250 property, particularly electrical or plumbing systems, typically require engineering expertise.

The point is not that every improvement requires a cost segregation study.

The point is that good records preserve the facts needed to evaluate the property accurately when analysis is appropriate.

September Gives You Time to Fill the Gaps

A documentation review can uncover missing information while there is still time to find it.

For each major improvement, consider whether you have:

• Final contractor invoices
• Change orders
• Construction drawings or plans
• Equipment schedules
• Photographs of the completed work
• Records showing when the project was completed
• A clear description of what was installed or replaced

You may discover that everything is already organized.

You may also discover that a final invoice is missing, a project description is too vague, or important records are sitting with a contractor or property manager.

Finding that out in September gives you time to address it.

Build a Better Property History

There is also a longer-term benefit to this process.

Commercial properties evolve.

A building acquired several years ago may accumulate tenant improvements, mechanical upgrades, electrical changes, exterior improvements, renovations, and other capital projects.

Over time, those projects become part of the property's history.

Keeping organized records helps owners and their advisors understand that history instead of trying to reconstruct it years later.

The ATG's detailed engineering approach illustrates the value of this information. It relies on contemporaneous construction and accounting records and identifies actual cost documentation as contributing to the accuracy of cost allocations.

Make September a Documentation Checkpoint

You do not need to complete your year-end tax planning in September.

Use September to make sure the underlying property information is ready for that conversation.

Review the improvements completed this year. Organize the records. Identify missing information. Make sure significant property activity has been communicated to your advisors.

Then, when year-end planning begins in earnest, the conversation can start with a clearer understanding of what actually happened at the property.

Good planning starts with good information.

If you'd like to discuss your property or investment strategy, schedule a conversation with Brian.👇

https://app.iclosed.io/e/CostSegRx/cost-segregation-strategy-call-with-brian-kiczula