Cost Segregation Studies
If your company constructed a new facility, acquired an existing facility, performed construction leasehold improvement, or renovated an existing facility you may be paying too much federal income tax. SourceCorp Professional Services provides cost segregation studies to help companies increase cash flow by accelerating depreciation expense deductions.
A cost segregation study may be conducted on any building that has been placed in service since December 31, 1986, by a tax paying company that does not show an operating loss or will be profitable in the near future. Good cost segregation opportunities include:
- New construction and renovations
- Acquisitions of property
- Buildings previously placed in service without a cost segregation study that are currently depreciating entirely over 27.5 or 39 years
Cost segregation reclassifies the components of a building into shorter class lives. For example, a building’s floor, roof and walls might be classified as 39-year real property; site improvements such as sidewalks and landscaping would be classified as 15-year real property; communications equipment and general office furnishings as 7-year tangible personal property; and carpeting, decorative lighting and computer associated items as 5-year personal 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.
If you own or lease a facility, the depreciation deduction is one of the most significant opportunities to reduce your tax liability.
Our dedicated cost segregation team includes licensed engineers, appraisers, architects, CPAs and construction managers, many of whom are LEED Accredited Professionals. If you think you may qualify for this deduction and want to increase your cash flow, contact us.
