Whether you are building, remodeling, expanding, or purchasing a facility, a cost segregation study can help increase your cash flow. Many property owners do not take advantage of these provisions and end up paying federal and state income taxes sooner than they need to.
Cost segregation is a tax deferral strategy that frontloads depreciation deductions into the early years of ownership. Segregating the cost components of a building into the proper asset classifications and recovery periods for federal and state income tax purposes results in significantly shorter tax lives (5-, 7-, and 15-year) rather than the standard 27.5- or 39-year depreciation periods. In other words, you are able to defer taxes, putting more cash in your pocket today.
Let’s assume a newly constructed or purchased commercial facility has a cost basis of $5 million. Typically, the facility’s property components and land improvements would be classified under “building” and depreciated over the standard 39-year period. A cost segregation study would identify items that could be reclassified to shorter depreciable lives. The graph below indicates the benefits related to the $1,250,000 of property identified during the study as eligible for shorter-life depreciation. In the first five years of ownership, depreciation increased by $648,244 when compared with no cost segregation study being performed. This resulted in a tax deferral in year 1 of $45,300 and a deferral of $226,885 over the first five years of ownership.
In general, a facility may qualify for a cost segregation study if:
A cost segregation study may be performed for:
A number of different kinds of real estate may qualify for a cost segregation study. The following chart shows average asset reclassifications for some common property types.
Our cost segregation group combines the expertise of engineers and construction specialists with experienced accounting professionals who have a fine-tuned knowledge of tax law. We complete our studies without requiring outside consultants, so we can deliver you a quality product quickly. Our firm’s longevity and diverse skill set allow us to handle the most complex and time-sensitive studies. These studies result in significant tax savings. You can realize a return on investment quickly. Our clients tell us they receive great value from their cost segregation investment.
Effective cost segregation studies should meet the relevant tax laws and guidance. We take a proven, effective approach to tax savings, ensuring that our analysis and research are complete, our recommendations are accurate, and project documentation is in place. When we’re striving to increase your depreciation and the corresponding tax savings, we work closely with you to find the balance between tax savings and risk.
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