Cost Segregation Study

If you own commercial real estate, you are likely familiar with the traditional 39-year cost recovery period the IRS assigns to such property. But what if you could segregate some of the property into items that qualify for 15-, 7-, and even 5-year cost recovery periods? This would accelerate your depreciation deduction and increase your current year cash flow. Reclassifying property into shorter recovery periods also enables most reclassified property to qualify for bonus depreciation, adding to the acceleration of tax depreciation deductions. Taking advantage of the tax law requires careful planning and in-depth knowledge.

Our cost segregation team has a complete understanding of property depreciation rules and regulations, and will work with our engineering partners to perform a complete property analysis. In this analysis, we will determine which assets can be assigned shorter recovery periods, accelerating your cost recovery and freeing up your cash flow.

Without thoughtful consideration buildings and everything they’re made up of – doors, lightbulbs, even the decor – are treated as one large asset with the longest possible recovery period. A cost segregation study seeks to analyze the individual pieces that constitute the total value of a building and estimate the cost assigned to each class of property, segregating the components of the building into more appropriate segments, as allowed based on specific IRS guidance and tax court cases.

Our cost segregation studies take place in three phases. In our approach to providing you with a property analysis, we make it our priority to complete the study accurately, efficiently, and with minimal disruption to your business.  The phases of the cost segregation studies includes:

1. Documentation

   During this phase, members of our team will visit the building and document relevant items based on the IRS audit technique guides, including room dimensions, furniture and fixtures, improvements, and other observations. We will also collect pictures and samples as needed.

2. Cost analysis

   The second phase will take place at our office. We will work with our engineering partner to analyze costs associated with each component identified during the documentation phase of the engagement.

3. Tax analysis

   The final phase will consist of our tax professionals analyzing the segments of property to determine the appropriate depreciable life for the cost associated with each, recalculating current year depreciation under this new accounting method.

Once the study is complete, we will provide you with a property analysis report and account for our study’s findings on your tax returns going forward. Using our approach, based on IRS guidance and applicable case law, you are allowed to capture the maximum depreciation deductions from the date that the property is placed in service.

Under the Internal Revenue Code, you can deduct the cost of the light bulb in your lobby now, or you can wait and deduct it over the next four decades. The same goes for many other components of your commercial real estate. Do not leave valuable tax incentives on the table – Instead, put your property to work for you, taking advantage of the immediate cash flow opportunities a Cost Segregation Study can offer.