What is cost segregation, and how does it work?
Under United States tax laws and accounting rules, 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. In other words, Cost Segregation is a tax savings tool allowing businesses and individuals to increase cash flow by accelerating deductions and deferring Federal and State income taxes.
What is a “cost segregation study”, and why is it necessary?
A Cost Segregation Study is a detailed analysis of a structure/building that reclassifies or segregates its real estate components and improvements to differentiate between real and personal property. By doing so our clients can accelerate the depreciation periods from 39 or 27.5 years to 15, 7, or 5 years, respectively.
CSI has developed methods to deliver this same service to commercial property owners at very affordable rates. This means you can take advantage of this tax savings that was once only enjoyed by the owners of exceptionally large properties.
What kind of real estate qualifies?
Property that was:
1.) Purchased, constructed, or remodeled property after Jan. 1, 1987
2.) and that you anticipate holding for at least a few years.
When should a cost segregation study be done?
It is best to have a study completed for the year the building or improvements are placed in service. However, IRS Revenue Procedures allow taxpayers to “catch up” on the depreciation that was not claimed from the first day the property was placed in service without amending prior years’ tax returns. Furthermore, the IRS now allows for the “catch up” period all in the first year rather than over four years, when the Revenue Procedure 99-49 was first introduced. A cost segregation study can be performed on any property constructed, acquired or remodeled since January 1, 1987.
What information will be needed?
While each study differs, we generally request the following information, if available:
1.) A current depreciation schedule (usually at the back of your tax return).
2.) Building cost information
3.) Change orders
We can assist you in gathering the necessary data.
How does the study work?
Building costs are generally classified for federal income tax purposes into three categories; (1) Tangible Personal Property,(2) Land Improvements, and (3) Real Property. Each has a different recovery period and method under the Modified Accelerated Cost Recovery System (MACRS). Our certified cost segregation analysis is performed by professional personnel with in-depth knowledge of construction methods, materials, and building components to properly identify the building elements and improvements that will be.reclassified to take advantage of accelerated depreciation.
Why should I commission such a study?
Without a Cost Segregation Study your accountant will only be able to use straight line depreciation, 39 or 27.5 years. A Cost Segregation Study provides your accountant with accurate information to establish 5, 7, 15, and 27.5 or 39-year lives, which substantially increases tax savings in the earlier years of owning your property.
Will a cost segregation study trigger an audit?
No. Our Cost Segregation Study methodology strictly adheres to the IRS Cost Segregation Audit
Technique Guidelines. If the Cost Segregation Study comes into question, a one of our certified cost segregation study professionals will attend the audit per our contract.
Can a study apply to buildings not yet constructed?
No. However, for projects not yet constructed, we can provide estimates on tax savings from your construction budgets. A Cost Segregation Study will be conducted when construction is complete.
Why should I choose CSI?
CSI’s certified cost segregation study professionals have the expertise in tax law, cases, and rulings on cost segregation, along with real estate development and construction experience to maximize your tax savings. Our company will work with your advisors to help you take advantage of this extremely viable tax savings solution.
REQUEST a STUDY to learn about reducing income tax liability while increasing your cash flow today. There is no cost or obligation to have an order of magnitude study prepared and reviewed with you. Contact Us