What is Cost Segregation?
Cost Segregation is a practice that permits a taxpayer to identify certain components of depreciable real property that can be reclassified as personal property. This study may allow an opportunity for the taxpayer to accelerate depreciation for certain assets that qualify as personal property over 5, 7 or 15 years, as opposed to real property lives of 27.5 or 39 years. Our study’s main focus is to reduce your tax burden and ultimately increase your operating cash flows.
Qualified Properties
The tax code allows a taxpayer to conduct a cost segregation study for certain properties placed in service after December 31, 1986. From a cost/benefit standpoint, properties that maintain a cost basis of $1 million or more are usually good candidates for cost segregation. Properties considered for the study are:
- Construction of a new facility
- Renovation and expansion of existing facility
- Purchase of a new facility
Building Types
- Office Buildings
- Apartments
- Hospital/Healthcare
- Manufacturing Facilities
- Retail Properties
- Restaurants
- Hotels/Motels
Catch-up Depreciation
Recent IRS rulings and procedures have allowed taxpayers to “catch-up” on previously under-reported depreciation. This can be accomplished without filing an amended tax return and benefits can be recognized in the year of change.
Our Approach
Procedures that we employ in our studies to maximize on allowable depreciation, while being sensitive to possible audit exposures, are as follows:
- Thorough review of all available construction drawings
- Careful on-site review of the subject property
- Collection of all direct and indirect cost/accounting records
- Complete detail of tax depreciation schedules
