Cost Segregation Can Reduce Taxes and Increase Cash Flow

If you own or lease a commercial building, cost segregation is one of the most significant opportunities available to reduce your tax liability and increase cash flow.

This depreciation deduction allows a building owner to increase cash flow by accelerating a building’s depreciation. A cost segregation study may be conducted on any building placed in service since 1987 by a tax paying company that does not show an operating loss or will be profitable in the near future.

Properties eligible for cost segregation include buildings that were acquired, constructed, expanded or remodeled.

Cost segregation reclassifies the components of a building into shorter class lives. Most property is depreciated at a 27.5 or 39-year life, but through cost segregation, many building components may be depreciated faster.

For example, a building’s floor, roof and walls would still be classified as 39-year property, but site improvements such as sidewalks and landscaping would be classified as 15-year property; communications equipment and general office furnishings as 7-year property; and carpeting, decorative lighting and computer associated items as 5-year property.

The benefits of cost segregation are easy to demonstrate. For each dollar that is reclassified into a 7-year class life, the taxpayer realizes from $ 0.15 to more than $0.20 in the cumulative present value of taxes deferred. Similarly, for each dollar that is reclassified into a 5-year class life, the taxpayer realizes from $.19 to more than $.23.

The exact amounts depend on factors such as the tax rate, discount rate and whether the subject property qualifies for bonus depreciation. For assets newly placed in service during 2008 and 2009, 50 percent bonus depreciation applies to the shorter life property.

Our cost segregation team includes licensed engineers, appraisers, architects, CPAs and construction managers, many of whom are LEED Accredited Professionals.