using engineering and appraisal methods to create profitability for real estate owners.
What is cost segregation?
Cost segregation studies are one of the most valuable tax strategies available to commercial real estate owners. Virtually every taxpayer who owns, constructs, renovates, or acquires a commercial real estate facility stands to benefit from having a cost segregation study performed. Cost segregation is an IRS approved application in which commercial property owners can accelerate depreciation of certain assets. This is achieved by re-classifying these property assets from a standard 39 year depreciable life to a 5, 7 or 15 year depreciable life.
How can Cost Segregation Benefit You?
- An immediate increase in cash flow
- A reduction in current tax liability
- Deferring your taxes
- Enhancing the ability to reclaim missed depreciation deductions from prior years
Who stands to benefit from Cost Segregation?
Virtually every tax payer who owns, constructs, renovates, or acquires a commercial real estate facility stands to benefit from having a cost segregation study performed.
What items qualify for reclassification according to the IRS?
A number of assets could be eligible for reclassification that could result in tax depreciation, including flooring, landscaping, electrical, paving, signage, decorative lighting, plumbing, partition walls, and millwork.
What are Look Back Cost Segregation Studies?
Look Back Cost Segregation Studies are useful to clients who purchased or constructed commercial real estate prior to the current tax year and did not take advantage of accelerating the depreciation at the time the improvements were placed in service. The IRS allows property owners to develop a Cost Segregation Look Back Study in order to determine the depreciation that should have been realized at the time of completion or at the time of purchase. The difference in the accelerated depreciation and the actual depreciation taken is realized in the following tax year. There is no need to file amended tax returns. The IRS requires the owner to file a simple 3115 form, which is a change of accounting method.
Why are people not using Cost Segregation?
- Not aware of the benefits – trusted advisors are not sharing the benefits of the tax strategy with their clients.
- Some believe that a Cost Segregation Study will Trigger an audit – this is simply not true as the IRS has guidelines for developing such studies, which is part of the IRS audit techniques guide.
- The Cost Segregation Study is too expensive – this may be true in some circumstances, but we would never recommend doing the study unless the return on investment is over 4:1. We have also developed a flexible pricing structure for our reports, which provides alternatives for our clients.
- Property owner does not plan on holding the property longer than 2 years – in cases where the owner does not plan to hold the property at least 2 years, Cost Segregation is typically not a recommended tax strategy.
Introducing the CostSegCheck
The Ambrose Group’s CostSegCheck Calculator, built by our team of experts, provides a quick and easy process to estimate tax savings by diagnosing the accelerated depreciation of your property.