If your business recently acquired, constructed or substantially improved a building, a cost segregation study may be a great way to take advantage of permanent tax savings. Cost segregation is an engineering based approach to allocate costs among the various building components to maximize depreciation expense by classifying qualified assets into shorter lives. A cost segregation study will also maximize the assets eligible for bonus depreciation.
We take pride in the fact that our cost segregation studies provide our clients with significant tax-saving opportunities. Our in-house cost segregation team combines engineering and construction expertise with up-to-date tax and accounting knowledge. By following a proven process, and applying years of tax and cost segregation experience, we help clients receive value and savings well in excess of our fees. Having performed studies on a wide variety of properties, including retail, manufacturing, distribution, restaurants, health care (surgical centers, nursing homes, hospitals and clinics), self-storage facilities, hotels, office buildings and automobile dealerships, we work hand in hand with our clients to achieve their goals effectively and efficiently.
How a Cost Segregation Study Works
Companies often allocate a building’s acquisition or construction costs to real property, overlooking the opportunity to allocate some costs to shorter-lived personal property or land improvements. For instance, when constructing a new building or undergoing major remodeling, it is imperative that short life property is allocated to the correct life instead of falling under a 39-year depreciable life along with the building. By performing a cost segregation study, our professionals will identify assets buried in building costs and assign the shortest possible depreciation life to them, resulting in maximum tax deferrals on the facility.
IRS-Approved Cost Segregation Process
Our cost segregation services include a thorough investigation necessary to assign proper asset life classifications, ultimately saving you tax dollars. In our cost segregation study, we follow an IRS-approved cost segregation process which includes an engineering based approach and a site visit that allows us to efficiently determine short life property. While each project is different, our cost segregation studies typically include the following:
- Review of architectural drawings
- On-site facility inspections
- Isolation of shorter class life depreciation
- Detailed asset descriptions
- Documentation of assets qualifying for 3, 5, 7, 10, 15, 20 or 27.5 year life depreciation
- Review of findings with management
- Final report preparation
A Cost Segregation Study in Action
Here is a simplified example of savings that a business can realize by performing a cost segregation study:
- Company A constructed a nonresidential commercial building for $10 million on January 1, 2017. If all of the construction costs are allocated to 39-year real property, the business is entitled to claim $256,410 ($10 million divided by 39 years) in depreciation deductions the first year.
- A cost segregation study might reveal that the business can allocate $500,000 to 15-year property and $1.5 million to five-year property, both of which have an accelerated depreciation method and are eligible for bonus depreciation. Reallocating the purchase price increases the business’ first-year depreciation deductions to $1,162,500.
Careful cost segregation of personal and real property costs results in substantial tax savings. Better yet, these tax savings come when you need them most — in the first few years after occupying a new or remodeled facility. To learn how your business can benefit from a cost segregation study, contact our team today or complete our cost segregation study feasibility analysis.
- Online/Live Webinar, 02.01.2018