Cost segregation is the IRS approved method of re-classifying components and improvements of your commercial building from real property to personal property. This process allows the assets to be depreciated on a 5, 7, or 15-year schedule instead of the traditional 27.5 or 39-year depreciation schedule of real property. Thus your current taxable income will be greatly reduced and your cash flow will increase.
A cost segregation study can generate tax savings from:
- New buildings or buildings currently under construction
- Existing buildings undergoing renovation or expansion
- Newly purchased existing buildings
- Tenant leasehold improvements
While the tax benefit resulting from a cost segregation study is dependent on the individual property and taxpayer, clients routinely receive present value cash flow savings of 10 or more times their investment for the cost segregation study.
Prior-Year Real Estate Transactions
Cost segregation also is available for real estate transactions from previous years. Under current IRS rules, you can perform a cost segregation study on a building purchased, built or improved in a prior year and “catch up” the additional depreciation in the current tax year. Amended tax returns are not required, and it is not unusual to see significant current-year tax benefits from real estate transactions that took place up to 15 years ago.
Quality Cost Segregation Report
Your cost segregation report is designed to meet or exceed IRS guidelines. These reports include a complete “audit trail,” tracing derived unit costs from contract documents and other source data. Your cost segregation report is designed to withstand IRS scrutiny while helping to generate significant tax benefits.