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. According to the American Society of Cost Segregation Professionals, a cost segregation is "the process of identifying property components that are considered "personal property" or "land improvements" under the federal tax code.
A cost seg study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs.The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property).Personal property assets found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building.
Land Improvements generally include items located outside a building that are affixed to the land and do not relate to the overall operation and maintenance of a building. Reducing tax lives results in accelerated depreciation deductions, a reduced tax liability,and increased cash flow.
A Cost Segregation study allows a taxpayer who owns real estate to reclassify certain assets as Section 1245 property with shorter useful lives for depreciation purposes, rather than the useful life for Section 1250 property.
Analysis of capital expenditures is used to determine appropriate asset classifications. Cost segregation identifies building costs that would typically be depreciated over a 27.5 or 39-year period and reclassifies them to permit a shorter, accelerated method of depreciation for certain building costs. Costs for non-structural elements, such as wall covering, carpet, accent lighting, portions of the electrical system, and exterior site improvements such as sidewalks and landscaping, can often be depreciated over five, seven or 15 years, rather than over 27.5 or 39 years. There’s a difference between a cheap cost segregation study or fully engineered cost segregation study.
Step 1- Complete the “free benefit analysis” page here on our website or give us a call
Step 2- We will call you to review the Benefit Analysis and answer any questions you may have
Step 3- Consult you CPA or Tax Planner
Step 4- Sign the proposal & provide us with a deposit
Step 5- One of our engineers will conduct a detailed site inspection taking several pictures and notes
Step 6- We review the draft report and final analysis with you
Step 7- We provide you the Cost Segregation Final Report
Must be a “for profit” entity
Must have an IRS tax liability
Must have owned property less than 15 years (actual building can be older)
Valuation minimum of $300,000 on Commercial Property [can include major renovations, remodels, restorations and/or expansions]
A minimum of $75,000 in leasehold improvements or build outs (not FF&E)
“Cost Segregation is a lucrative Tax Strategy that should be used in almost every purchase of commercial real estate.” ~ IRS, Wall Street Journal
Cost Segregation eligible property types:
Storage Facility or Warehouse
Residential and Vacation Rental
Day Care and School
Auto Dealership and Vehicle Dealership
Fitness and Gym
Manufacturing and Industrial
Etc.- any income producing property
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