Overview
CSA Partners is the industry leader in maximizing tax savings through our proprietary 1245 Exchange™ service.
As experts in valuing tangible personal property within real estate assets at the time of sale, we specialize in reducing depreciation recapture by accurately reassessing the Fair Market Value (FMV) of short-lived building components under IRS standards.
1245 Exchange™ is a service developed by CSA Partners to address a commonly overlooked opportunity: permanent, significant tax savings through proper asset reclassification. While many avoid it due to its complexity, we embrace it with the deep expertise, advanced technology, and proven methodology needed to deliver precise, defensible results.
Due to the complexity and significant data required, 1245 Exchanges are often overlooked – but when executed properly, they can lead to permanent and meaningful tax savings. CSA Partners has deep experience in this space and leverages robust technology and processes to deliver accurate valuations for clients of all sizes.
Background
Many taxpayers assume that all gains from the sale of real estate are taxed at capital gains. However, since 1954, the IRS has required taxpayers to pay prior depreciation recapture as ordinary income, which may be taxed as high as 37%.
Because of this, the way a sale’s purchase price is allocated among asset classes has significant tax consequences. Short-life assets (classified as §1245 Tangible Personal Property) are subject to ordinary income recapture, while long-life structural components (classified as §1250 Real Property) may qualify for preferential capital gains treatment.
Through a cost segregation study, such as those performed by CSA Partners, the value of a real estate asset is subdivided into:
- Short-life assets (e.g., equipment, flooring, millwork, electrical, etc., as §1245 property)
- Longer-life assets (e.g., land improvements, structural components as §1250 property)
Cost segregation studies utilize engineering-based cost allocations to segregate the various asset types based on construction cost estimation methods. While this results in substantial depreciation benefits early in the investment, it also creates depreciation recapture exposure on sale, which a 1245 Exchange seeks to mitigate.
When Does 1245 Exchange Make Sense?
Once a property is sold, the following step is to complete the gain calculation for compliant tax reporting. This is where we come in, by completing a 1245 Exchange study, and providing a Fair Market Value (FMV) for all §1245 property along with all of the necessary gains, capital gains, §1245 depreciation recapture, and §1250 unrecapture calculations.
Does 1245 Exchange Make Sense For Me?
How will a 1245 Exchange Study Affect My Tax Return?
By establishing market value at the time of sale for all tangible personal property assets according to IRS guidelines, a 1245 Exchange can reduce the portion of gain subject to ordinary income tax rates. The difference is reallocated to §1250 property, which, if held for more than one year (366 calendar days), qualifies for long-term capital gains rates (typically 15-20%).
