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Purchase Price Allocation

Purchase Price Allocation: Accelerate Tax Depreciation and Increase Cash Flow

Have you recently purchased a building? A real estate Purchase Price Allocation can provide significant tax savings and increasing cash flow. Buyers of buildings and improved property must allocate the transaction price between non-depreciable assets such as land, and depreciable assets such as buildings, land improvements, tenant improvements, fixed equipment, moveable assets, personal property, etc.

The Allocation must be based upon the appraised Fair Market Value In Use of all the assets acquired, balanced to the final purchase price. This establishes the basis for Federal and State income tax depreciation, which is deducted from taxable income, reducing income taxes, and increasing cash flow.

Comprehensive Purchase Price Allocation for Property Acquisitions

Paragon’s comprehensive Purchase Price Allocation services uses cost segregation methodology to separate the purchase price into different categories – building, personal property, land and land improvements – to accelerate and  maximize your tax depreciation.

Our services complement those of your accounting firm and are directed toward the following objectives:

  • Optimize future tax benefits for buyers by providing the basis for maximizing future cash flow.
  • Subsequent renovation of existing space generally involves removal of existing build out such as ceilings, floor finishes, light fixtures, ductwork, walls, wiring, plumbing, etc.
  • Estimate the proper allocation and market value of real and personal property for local property tax reporting and assessment purposes.
  • Estimate and segregate non-insurable portions of the property from the insurable portions, and develop current replacement costs for insurance purposes.
  • Estimate realty transfer taxes prior to closing, and identify and value personal property exempt from such taxes.
  • Create new fixed asset accounting records based upon verified physical inventory and new cost basis resulting from the purchase price allocation.

Based on our experience with a variety of different types of properties, here are example savings:

 

Property Type Purchase Price Personal Property Taxes Saved Years 1-6
Office Building $20M $ 5M $1.7M
Retail Center $15M $ 3M $1.0M
Hotel $40M $12M $4.1M
Call Center $15M $ 6M $2.0M
Manufacturing Plant $50M $15M $5.2M
Distribution Center $25M $ 3M $1.1M

Success Story

A 100,000 sq. ft. cold storage warehouse facility was purchased for $11 Million. The detailed Fair Market Value allocation resulted in 5 year property of $2.4 Million and a 6 year tax savings of $750,000.

Sage Fixed Assets ROI Calculator

Not only can Sage Fixed Assets make your fixed asset management process more efficient, but it may help you save money, as well. Don’t just take our word for it: We invite you to see first-hand how Sage Fixed Assets solutions pay for themselves.

Cost Segregation Savings Calculator

The ultimate return on any investment (ROI) is the net cash flow realized after all expenses and costs have been paid, including Federal and State income taxes. We invite you to see first-hand how Cost Segregation solutions pay for themselves.