Cost Segregation

Cost segregation is an IRS sanctioned tax strategy and planning tool that can help owners or lessors of commercial real estate save significantly on their federal income taxes. Applying cost segregation to commercial property will determine how quickly an owner should be depreciating the personal property on their income taxes — 5, 7, 15, 27.5, or 39.5 years.

Benefits:

• Decreased tax payments will increase cash flow
• “Look back and catch up” — the IRS allows taxpayers to correct the tax lives for assets placed in service back to 1987
• A cost segregation analysis can recapture all of the understated depreciation expenses for any asset that has been improperly classified in previous years
• Since the tax law changes took effect, taxpayers have utilized cost segregation studies to defer billions of tax dollars
• Typically, only 3% of a building’s component costs are classified to reap the greatest tax benefits. A cost segregation study will find all assets that qualify
• An engineering based study captures 100% of assets eligible for accelerated depreciation and is the method preferred by the IRS

Questions to Consider:

• Have you purchased, improved, constructed, or remodeled any real estate since 1987?
• Is your company a for-profit entity?
• Have you been profitable in the last 5 years?
• Do you have any property transactions involving a 1031 exchange?