What Is A Cost Segregation Study?

Quick Answer: The Cost Segregation Study allows corporations and investors to reduce their taxable income with accelerated depreciation, resulting in increased after-tax cash flows.

A Cost Segregation Study (CSS) properly classifies the investment made in a building or facility between structural and non-structural property.  We are able to carve out non-structural assets that are often buried or lumped together within real property assets.  We reclassify those asset costs to the shortest possible depreciable life to enable the real estate owner to maximize their tax depreciation deduction, thereby reducing current income tax obligations.  Certain assets related to the project may qualify for accelerated depreciation, meaning you can take larger tax deductions over a shorter period. The benefits of larger tax deductions include increased cash flow and lower cost of capital in the first few years following a project or purchase.

Our study, following court rulings and IRS legislation, allows investors to claim accelerated tax depreciation and provides a substantial deferral of income taxes and possibly reduced real property taxes.

All properties constructed or acquired since 1987, such as car dealerships, fast food restaurants, office buildings, apartment buildings, and many others qualify for cost segregation and / or ‘catch-up’ depreciation.

By allocating the acquisition or construction costs of a building between real and personal property, based on case law and IRS guidance, a CSS allows investors to Reduce their Current Income Tax Liability and Increase their Cash Flow from the property.

Example:
A fast food restaurant such as a McDonald’s has Kitchen Equipment, Furniture and Fixtures, Landscaping, and a number of other components. By reviewing the engineering drawings and construction invoices, the direct and indirect costs can be allocated to building, site-work, and equipment.

Many CPA’s and investors have overlooked the tax benefits of allocating their investments based on a cost segregation study.