Cost Segregation

Do You Really Want to Give the IRS an Interest-Free Loan?

A cost segregation study is a tax deferral tool allowing property owners to allocate building costs between real and personal property. Real property, which are structural components of the building, is generally depreciated over a lengthy 39 years. However, IRS guidance and case law allow components of a building’s cost to be reclassified from 39 years to personal property depreciated over 5, 7, and 15 years. The benefit of a cost segregation is usually between 2.5 to 10 percent of the building's cost. At the Tax Analytics Group (TAG), our cost segregation studies drastically improve cash flow by accelerating tax depreciation deductions.

 

Examples of personal property items often depreciated over 39 years eligible for shorter recovery periods include:
  • Removable floor and wall coverings
  • Cabinets and countertops
  • Decorative millwork
  • Furniture and appliances
  • Land improvements such as parking lots, sidewalks, and landscaping.
  • HVAC systems to support computer equipment and cool foodstuff.
  • Process-related plumbing or electrical work
  • Signage and other décor items

Using the same cost estimation software used by architects and contractors, we can perform cost segregations without historical construction cost documents. Moreover, since bonus depreciation is applicable to assets with tax lives of less than 20 years, there is an added incentive to have a cost segregation study performed on new construction or remodeling projects.


Success Stories

  • A manufacturer received a $450,000 benefit from a cost segregation of a factory building costing $2.5 million.
  • An apartment complex with depreciable assets totaling $9 million received a benefit from depreciation acceleration totaling $300,000.
  • The owner of an office building costing $10 million received a benefit of $400,000.

 

Do you want to know more on how we can help improve your cash flows and reduce your taxes? Please contact us for a free consultation.

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