Dealer Services

Cost Segregation Services

Are there hidden profits in your property?

The IRS depreciation tables require you to depreciate your building and leasehold improvements over a 39-year period, but a cost segregation study from Moss Adams LLP may help you improve your cash flow and save money by accelerating those deductions significantly and allowing you to begin deferring income taxes right away.

A cost segregation study identifies, separates, and reclassifies qualified real and personal property into shorter depreciable tax lives, using methods supported by favorable IRS rulings, procedures, and court cases. Project documentation includes construction drawings, building specifications, contractor pay requests, change orders, and discussions with your general contractors, architects, and/or engineering firms. Additionally, we visit your facility to ensure all qualifying personal property and land improvements have been identified.

You receive a written report that includes construction cost spreadsheets, which segregate the assets into personal property (5- or 7-year tax life), land-improvement property (15-year tax life) and real property (39-year tax life). This report also references court cases, revenue rulings and tax citations, and includes photographs that support our positions regarding identification of personal property and land-improvement assets for purposes of federal income tax reporting.

Whether your building is under construction or over 5 years old, we can usually help you generate sizeable tax benefits.

Case History

The graph below illustrates the potential for tax savings through cost segregation. In this example, the entire construction project was approximately $3.5 million. Our cost segregation study showed that $1.3 million related to land, $244,000 qualified as 5-year property, $161,000 qualified as 7-year property, and $677,000 qualified as 15-year property. That left $1.1 million remaining as 39-year property, and $18,000 was deductible in the current period.

A chart showing tax savings due to cost segregation.

By comparing this to a standard 39-year tax life, we are able to generate an income tax savings of approximately $158,000 for the property owner over the next 5 years. This example is for illustration purposes only, and assumes a tax rate of 40 percent (combined federal and state) and a present value rate of 7 percent. Nevertheless, we have seen similar results when reviewing other tax returns prepared without the implementation of a cost segregation study.

We would be pleased to show you a sample cost segregation report and discuss any questions you may have about your own situation. We look forward to helping you take advantage of this tax-saving opportunity.

Visit Cost Segregation Services for more information on this service.