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WHAT is a Cost Segregation Study?
Property owners of commercial and investment real properties
typically depreciate their real estate holdings over 39 years or 27.5 years (residential property). However, in
recent years, the IRS has provided guidelines to identify certain components of a building and reclassify them as shorter-life assets. The reclassification could mean the
property owner can take larger tax deductions over a shorter period, i.e.,
tax savings
and
improved cash flow.
HOW does a Cost Segregation Study work?
A Cost Segregation Study, conducted by the IRS’ preferred method, consists of a detailed examination of construction and accounting records by a professional consultancy
comprised of accountants and engineers with prior cost-segregation experience. Estimates are used to supplement the actual cost detail when the existing detail is not sufficient. Then, the study will identify the specific components of a building that can be reclassified as 5, 7, and 15-year life assets.
Some examples of such components include accent
lighting, carpet, cabinetry, floor covering, signage, paving, sidewalks, landscaping, specialty plumbing, electrical and HVAC equipment.
WHAT are the benefits of a Cost Segregation Study?
- Accurately classify assets and accelerate depreciation deduction—Time-Value of Money, i.e., a tax deduction is
historically worth more today than it will be in the future
- Increase cash flow immediately
- Claim “look-back” depreciation on previously misclassified assets without amending previously-filed tax returns
WHEN should a Cost Segregation Study be conducted and what kind of properties qualify?
Any building, facility, and leasehold improvement placed in service (via construction, expansion, purchase, or inheritance) since January 1st, 1987 could benefit from a Cost
Segregation Study.
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