Discover how Cost Segregation can optimize your tax savings and improve your cash flow. Our expert team specializes in identifying and reclassifying assets to maximize depreciation deductions. We can help your business unlock valuable tax benefits and increase your bottom line.
What is Cost Segregation?
Cost Segregation is a strategic tax planning tool approved by the IRS that accelerates the depreciation of personal property assets built within residential rental and commercial properties. Personal property assets found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building. By identifying and classifying assets with shorter depreciable lives, we can allocate more costs to these assets, resulting in significant tax savings.
The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property). Our team will conduct a comprehensive analysis of your property and provide a detailed report outlining the optimized depreciation schedule.
Who is Eligible?
Cost Segregation is not limited to newly constructed or purchased property. Any taxpayer who placed residential rental or nonresidential real property in service after 1986 (New, Built or renovated), without allocating costs to personal property, can have a cost segregation study performed.
Additionally, properties placed in service prior to the current tax year can receive permission to change its accounting method. Taxpayers are allowed to reclassify building elements as personal property and claim a deduction for the depreciation that should have been claimed on those elements, creating a negative (taxpayer favorable) IRC §481(a) adjustment for tax years ending on or after December 31, 2001. The change and deduction is taken on the current year return without amending any prior year’s tax returns.
Eligible properties includes buildings that have been purchased, constructed, expanded or remodeled since 1987. A study is typically cost-effective for buildings purchased or remodeled at a cost greater than $200,000. A cost segregation study is most efficient for new buildings recently constructed, but it can also uncover retroactive tax deductions for older buildings which can generate significant short benefits due to “catch-up” depreciation.
Qualifying Property Type Examples
|Hotels||30% – 50%|
|Shopping Malls||22% – 40%|
|Office Buildings||15% – 30%|
|Apartment Buildings||20% – 45%|
|Banks||30% – 47%|
|Retail Facilities||18% – 35%|
|Manufacturing||30% – 45%|
Benefits of Cost Segregation
- Increase Cash Flow: By accelerating depreciation deductions, you can reduce your tax liability and free up more cash for business operations, expansion, or investment.
- Maximize Tax Savings: Properly identifying and classifying assets allows you to take advantage of shorter recovery periods and higher depreciation rates, resulting in substantial tax savings.
- Improve ROI: By optimizing your depreciation schedule, you can improve the return on investment for your property and increase its overall value.
- Compliant & Ethical Approach: Our Cost Segregation services are fully compliant with IRS regulations and guidelines, ensuring that you benefit from legitimate tax strategies.
We Can Help
We have more than 20 years of expertise in completing the tax analysis required by the Internal Revenue Service. Cost Segregation studies can identify thousands of separately depreciable components in everything from residential rental properties to complex structures such as hospitals, restaurants, office buildings and factories, and must also allocate the appropriate costs to these items. Such costs include direct material and labor costs, as well as indirect costs such as architect, engineering, impact and permit fees.
Internal Revenue Service, Letter Memo (LTR 19992104)
By providing the property type (office, medical, apartment, etc.), the depreciable cost basis and the date your property was placed into service, we will provide a complimentary review and feasibility analysis to determine the amount of additional depreciation available and tax benefit you would be afforded with a full cost segregation study on your building.
Our goal is to deliver maximum tax savings while ensuring compliance and minimizing any potential audit risk.