Cost Segregation Services Cost Segregation is the Process of Identifying

Cost Segregation Services 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. A cost segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which increases annual deductions and reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs. The IRS Cost Segregation guidelines require a detailed engineering study and analysis to fully qualify for all the available cost segregation tax advantages and benefits. The Modified Accelerated Cost Recovery System (MACRS) is the current method of accelerated asset depreciation required by the United States income tax code. Under MACRS, all assets are divided into classes that dictate the number of years over which an asset's cost will be recovered. The engineering study and analysis of capital expenditures are 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, exterior site improvements such as sidewalks and landscaping, can often be depreciated over five, seven or fifteen years, rather than over 27.5 or 39 years. Typical Facility Benefits - Office Buildings - Apartment Buildings - Auto Dealerships - Golf Resorts - Light Manufacturing - Heavy Manufacturing - Hotel / Motel - Restaurants - Retail Centers - Shopping Malls 20% to 40% 20% to 36% 24% to 54% 20% to 40% 10% to 20% 15% to 28% 20% to 36% 20% to 40% 21% to 33% 20% to 41%
U.S. TREASURY DEPARTMENT - 2004 “Cost Segregation is a lucrative Tax Strategy that should be used in almost every major purchase of Commercial Real Estate.”

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Warehouses Self Storage Facilities Medical Facilities R & D Facilities

9% to 38% 12% to 78% 20% to 50% 21% to 46%

The Engineering Study Process An engineer will analyze the building, architectural drawings, mechanical and electrical plans, and other blueprints to segregate the structural as well as general building, electrical and mechanical components from those linked to personal property. The study also allocates “soft costs” such as architectural and engineering fees associated with the facility. Tax Benefits of Cost Segregation In addition to providing tax relief, cost segregation can benefit businesses by: 1. Minimizing taxes by accelerating depreciation deductions. When an asset’s life is shortened, depreciation deductions accelerate and cash flow increases. 2. It creates an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. 3. Catch-Up Provision: Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. This presents huge cash flow potential. 4. Additional tax benefits. Cost segregation can also reveal new ways to reduce real estate and sales and use taxes.
The New York Times “By ignoring generous IRS guidelines when establishing depreciation Schedules, 90% of real estate investors are unintentionally overpaying taxes.”