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What is Cost
Segregation?
Whether you are
constructing a new
building, expanding
an existing one,
purchasing real
estate,
rehabilitating an
old facility or
relocating with
leasehold
improvements, your
property can
generate much bigger
tax savings than you
realize.
Substantial tax and
cash flow savings
can be achieved by
taxpayers who
properly classify
their construction
or acquisition costs
between real and
personal property.
A cost segregation
study (“CSS”) is an
engineering-based
study of all costs
associated with the
acquisition or
construction of a
building. The
purpose of this
study is to classify
these costs as
either real or
personal property,
with the personal
property additions
being depreciated on
an accelerated
basis.
Normally, these
costs are assigned a
39-year depreciable
life for tax
purposes.
However, through a
cost segregation
study, some of these
costs may qualify
for a 5, 7 or
15-year depreciable
life, resulting in a
savings of up to 22
cents on every
dollar.
Properties with the
best savings
potential include:
Warehouses
and
DistributionCenters |
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Manufacturing and Industrial Plants |
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Office
Buildings |
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Retail
Stores and
Chains |
Hotels and
Motels |
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Shopping
Centers |
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Apartment
Facilities |
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Medical
Facilities |
Restaurants |
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Typical percentages of accelerated property by various property types are shown below: |
| Manufacturing |
20-60% |
| Hotels |
15-40% |
| Apartments |
20-50% |
| Restaurants |
10-40% |
| Office Buildings |
10-40% |
| Research & Development |
20-50% |
| Hospitals |
20-50% |
| Tenant Improvements |
15-50% |
| Retail |
15-40% |
| Grocery Stores |
15-50% |
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An effective, supportable cost segregation analysis requires engineering and valuation skills; a knowledge of construction methods, materials, and costs; and a knowledge of income tax regulations, court cases, revenue rulings, and procedures.
Our detailed cost segregation studies pay for themselves many times over, starting with the first year the property is placed in service. By investing in a professionally prepared cost segregation from The Cost Segregation Group you will have the assurance that you have maximized your depreciation benefits and have fully documented support for your depreciation claims should you be audited by the IRS.
During a Cost
Segregation Study
we:
- Physically
inspect the property
to identify,
quantify, and
document property
components
qualifying for
accelerated
depreciation
- Examine
architectural/engineering
drawings and
specifications for
potential asset
reclassification.
- Analyze cost
data, including the
contractor’s
application of
payments, change
orders, owner
incurred costs, and
indirect
disbursements.
- Prepare an
itemized list of
property units
qualifying for
shorter-life
classification based
on relevant income
tax authorities.
- Apportion direct
labor, material
components, and
indirect costs based
on engineering
drawings and
specifications.
- Reconcile total
costs per the
engineering analysis
to capitalized
project costs.
Clients routinely
receive present
value cash flow
savings at 10 to 20
times their
investment for the
study. A cost
segregation study
truly maximizes the
value of your real
estate assets.
A Windfall For Real
Property Built or
Acquired Previously
You now have a
valuable
opportunity,
courtesy of the IRS,
if you constructed
or purchased real
estate in a prior
year but did not
take advantage of a
cost segregation
study. This
IRS gift horse
allows you to
retroactively deduct
depreciation amounts
that you were
legally entitled to,
but did not claim
due to erroneous
property
classifications.
It is critical that
professionals with
the requisite
knowledge of the tax
laws and IRS
guidelines conduct
your CSS. Our
on-staff team of
accountants and
engineers have the
expertise in
construction and
project design from
both an engineering
and tax perspective
to perform a CSS on
any commercial or
residential
property.
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