Services

Cost Segregation

Significant short term tax savings can be generated from real estate holdings. How? By reclassifying assets to a shorter depreciable life. A little known IRS procedure now allows commercial real estate facilities to qualify for accelerated depreciation if a "Cost Segregation Study" (CSS) is completed. Often, the savings are substantial.

For example, a recent cost segregation study on a $13 million facility uncovered an additional $2.1 million of assets eligible for accelerated depreciation. Further, the cost segregation study identified that $1.2 million of the assets rescheduled could be depreciated immediately. This resulted in $550,000 in immediate tax savings.

How cost segregation works

Personal property is usually depreciated over a five or seven year life, real property is typically depreciated over 39 years (commercial property) or 27.5 years (residential property). A cost segregation study can identify portions of your property that qualify as shorter-lived assets and shift them from a 39-year life to 15-year, 7 year and 5 year life. The result is a faster write-off of costs previously included as real property.

What properties qualify?

Cost segregation studies can be performed for real estate holdings placed in service as far back as 1987, even if the year is "closed" for tax purposes. Studies can be performed on recently purchased facilities, newly constructed facilities and even major tenant leasehold renovations.

Current IRS revenue procedures permits companies that have claimed less than the allowable depreciation in prior years to reclaim the omitted depreciation in the next tax filing period. In addition, the segregated assets continue to be depreciated over shorter lives going forward. Savings derived from these studies flow directly to owners and investors by reducing current taxable income and therefore, taxes due.