Category: Cost Segregation and Depreciation

The Benefits of Cost Segregation – Increased Cash Flow and Tax Deductions!

The Benefits of Cost Segregation – Increased Cash Flow and Tax Deductions!

Cost Segregation is the process of segregating the costs associated with the specific commercial real property investments in real estate. Commercial real property is depreciated over 39 years (or 27.5 years for commercial residential).

In order to qualify for Cost Segregation, properties must have been constructed, acquired, or renovated after 1986, under the IRS guidelines. The property can be a new building under construction; existing buildings undergoing remodeling, restoration or expansion; purchases of existing property constructed anytime, but placed in service after 1986; office/facility leasehold improvements on your current facility and “fit outs”.

What are the Benefits of Cost Segregation?

With the benefit of properly segregating costs, business owners, investors, and developers can accomplish several goals related to real estate properties:

1. CASH FLOW – A significantly improved after tax cash flows from the project due to accelerated tax depreciation.
2. TAX DEDUCTIONS – Opportunity to claim “catch-up” depreciation on future tax returns for corrections in tax depreciation.

A Cost Segregation Study should never “estimate” or “assume” what the percentage of the basis of your reclassification of property might be.  An experienced, competent firm will perform the highly-detailed work that is absolutely necessary to provide you with the highest level of tax savings you have a right to and deserve.  The Study’s report must be completed with real, measured information, gathered by professionals who know from experience what a successful submission to the IRS requires.

The Business Wealth Preservation Group, LLC can recommend a preferred provider that can perform a no cost initial cost segregation analysis, and if it makes sense, perform a complete cost segregation study.  We strongly recommend you call us if you have questions.

Understanding Cost Segregation – And the Ability of Cost Segregation to Create Cash Flow and Tax Benefits for Your Business

Understanding Cost Segregation – And the Ability of Cost Segregation to Create Cash Flow and Tax Benefits for Your Business

According to Wikipedia, cost segregation“ is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. A cost segregation analysis identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs.

Eligibility for cost segregation includes buildings that have been purchased, constructed, expanded or remodeled since 1987. A cost segregation study is typically cost-effective for buildings purchased or remodeled at a cost greater than $500,000 and is most efficient for recently constructed or new buildings, but it can also uncover retroactive tax deductions for older buildings which can generate significant short benefits due to “catch-up” depreciation.

How it Works:
An experienced Cost Segregation Firm’s experts will analyze architectural drawings, mechanical and electrical plans, and other plans to segregate the structural and general building electrical and mechanical components from those linked to personal property.

Tax Benefits of Cost Segregation:
In addition to providing tax relief, a cost segregation analysis can benefit businesses in a number of ways:

  1. Maximizing tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased. This, in turn, increases cash flow available for personal income, operating expenses, or capital investment.
    2. Creating an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. Properly documented cost segregation analysis helps resolve IRS inquiries at the earliest stages.
    3. Playing Catch-Up: Retroactivity. Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. This opportunity to recapture unrecognized depreciation presents an opportunity to perform retroactive cost segregation analyses on older properties to increase cash flow in the current year.
    4. Additional tax benefits. Cost segregation can also reveal opportunities to reduce real estate tax liabilities and identify certain sales and use tax savings opportunities.

The Business Wealth Preservation Group, LLC can recommend a preferred provider that can perform a no cost initial cost segregation analysis, and if it makes sense, perform a complete cost segregation study.  We strongly recommend you call us if you have questions, and we’ll make sure you completely understand this opportunity.


Copyright 2010 The Business Wealth Preservation Group, LLC.