Cost Segregation Service

What is Cost Segregation?

Cost Segregation is a commonly used strategic tax planning tool that allows companies and individuals who have constructed, purchased, expanded, or remodeled real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

Cost Segregation History

1959 – Shainberg vs. Commissioner:

The courts ruled (and the IRS subsequently agreed) on the validity of Cost Segregation for tax depreciation on buildings.

1973 – Revenue Ruling 73-410:

This Cost Segregation ruling clarified that a taxpayer may separately depreciate parts of used property if a qualified appraiser ‘correctly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase.

1975 – Whiteco Industries, Inc. vs. Commissioner:

The Tax Court, based on an analysis of judicial precedent, developed six questions designed to ascertain whether a particular asset qualifies as tangible personal property.

1986 – Investment Tax Credit (ITC):

ITC has been repealed, and the new MACRS recovery periods for building depreciation have increased dramatically for properties placed in service after 1986.
· Residential property: increased to 27 1/2 years
· Commercial property: increased to 31 1/2 years and increased again to 39 years in 1993<

1987 – Revenue Procedure 87-56:

The wide gap in MACRS recovery periods provides a solid incentive to reallocate costs of buildings placed in service as far back as 1/1/1987. Revenue Procedure 87-56 includes class lives and recovery periods for assets.

1997-1999 – Hospital Corporation of America vs. Commissioner (HCA):

The most recent landmark case provides legal support for using Cost Segregation Studies for computing depreciation.

1999 – In Action on Decision (AOD) #CC-1999-008:

The IRS consented to the application of ITC principles in the HCA case. Later that year, the IRS Chief Counsel issued further guidance (CCA 19992145) supporting using Cost Segregation Studies.

2004 – IRS Issues Audit Techniques Guide:

Outlines the quality Cost Segregation Study criteria and provides direction to IRS field agents when reviewing a report that does not employ the methods suggested in the Audit Techniques Guide.

What are the Benefits of Cost Segregation?

Many business owners are surprised to learn of the compelling tax savings a cost segregation study offers. Below is a list of three of the most prominent benefits.

Cash Flow

Generates immediate increase in cash flow through accelerated depreciation tax deductions

Write Off

Quantifies property’s major components and leasehold improvements so they can be written off when replaced or renovated

Review

Provides an independent third-party analysis that will withstand IRS review.

How Does a Cost Segregation Study Work?

When a property is purchased, not only does it include a building structure, but it also includes all of its interior and exterior components. On average, 20% to 40% of those components fall into tax categories that can be written off much quicker than the building structure. A Cost Segregation study dissects the property’s construction cost or purchase price that would otherwise be depreciated over 27 ½ or 39 years. The primary goal of a Cost Segregation study is to identify all property-related costs that can be depreciated over 5, 7, and 15 years. For example, certain electrical outlets dedicated to equipment such as appliances or computers should be depreciated over 5 years.

LTRS goes beyond a traditional Cost Segregation study and will separate all the different building structural components (such as the roof, windows, or HVAC units) so a loss deduction can be claimed when replaced. For leased property, we also separate tenant leasehold improvements.

Estimate Your Cost Segregation Savings Instantly

The Cost Segregation Savings Calculator estimates your federal income tax savings and provides:

• Estimated allocation to 5, 7, 15, and real property
• Tax deductions and additional cash flow by year
• Net present value over 10 years and the life of the property

Try it for free. Enter basic building info and instantly receive the estimated tax savings.

ESTIMATE YOUR SAVINGS