OVERVIEW
Cost segregation studies seek to identify construction or acquisition costs that qualify
for shorter federal tax lives. Typically, construction costs are lumped together as real
property and recovered over a 27.5 or 39 year period. A cost segregation study carefully
breaks down those construction and/or acquisition costs and allocates them to specific
categories – maximizing accelerated depreciation for qualifying building components
over 5, 7, or 15 years. These shorter lives can have a significant positive impact on a
company’s current federal tax liability and can create positive cash flow. WHO CAN BENEFIT?
Any business enterprise or investor that has:
- New buildings and facilities under construction.
- Existing buildings undergoing renovations, remodeling, restoration, or expansion.
- Leasehold improvements to offices and facilities.
- Acquisitions or investments in real estate properties.
- Inherited real estate
Additionally, if any of these projects have been completed or acquired within the past
five years, the tax savings are still available.
BENEFITS
Federal Income Tax - Reduce federal tax liability through accelerated depreciation
deductions. Revenue Procedure 99-49 permits taxpayers who claimed less than the allowable
depreciation in prior years to change accounting methods to claim the full allowable
amounts.
State Income Tax – In addition to the accelerated depreciation savings, a cost
segregation study can be used to identify assets that receive special treatment for
apportionment and specific exemption purposes.
Sales & Use Tax – Reduce sales and use taxes by identifying assets to which
these taxes do not apply.
Property Taxes – Minimize property taxes by identifying costs that should not be
included in the property’s tax base.
Credits and Incentives – Quantify costs for additional tax credits, incentives,
and abatement programs.
Insurance – Reduce insurance premiums by properly segregating costs between
insurable and non-insurable property.
Cost Allocation – Develop better information for allocating costs for
accounting/reporting purposes as well as acquisition purchase accounting.
PROCESS
The key to a successful cost segregation study is that the allocation is based on an
engineering approach combined with work paper documentation that provides the kind of
detail and support accepted by the IRS and tax courts. Our team of professionals and
construction engineers have a thorough knowledge of the tax code and experience in
successfully defending cost segregation studies since 1981. Using tax, construction,
and engineering skills, we perform the following steps:
- A feasibility analysis is performed and tax issues are identified.
- Information is gathered including blueprints, AIA documents, contracts, and invoices.
- A site visit of the completed project.
- A reconciliation of all costs associated with the project.
- Review of all data and preparation of a detailed asset allocation.
- Recalculation of depreciation schedules.
- Prepare various tax fillings and issue final report.
Call Mike Byrnes (215-940-7801) or Bernadette Chiocco (215-940-7803) to see how a Cost
Segregation Study can positively impact your bottom line.
Click on the image below for a printable overview of Cost Segregation Studies.
|
