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How to Realize Tax Benefits with Cost Segregation

If you are an owner of commercial real estate, you likely have heard of cost segregation. But perhaps you have not been informed of the incredible tax benefits it offers and how much it can improve your business's cash flow. Many business owners have utilized cost segregation studies to save huge sums of money on their taxes. In short, if you are not taking advantage of this tax law, you're gravely missing out.

What Is Cost Segregation?

Cost segregation is a tax planning law that allows owners of commercial real estate to reallocate their assets by separating personal property assets from real property assets. Certain items can be classified as personal property or improvements to the land that enable the business owner to claim an accelerated depreciation, allowing for a big tax break. Through a cost segregation study, you can claim that many of the property’s nonpermanent assets are depreciating at a faster pace.

What Types of Properties Are Eligible for a Cost Segregation Study?

The list of properties that are eligible for a cost segregation study is practically endless. Restaurants, office buildings, gas stations, shopping centers, factories, medical practices, and apartment buildings are just a few of the types of businesses that have been known to take advantage of cost segregation.  

What Items Are Indexed in a Cost Segregation Study?

Items eligible under this tax planning law include nonpermanent components of a commercial property that are susceptible to wear and tear. Typical items included in a cost segregation study are security systems, office supplies, plumbing, electrical work, engineering fees, builder overhead, landscaping, and even carpeting and furniture. The list doesn't stop there. Anything that can be reallocated from commercial property to personal property should be investigated in the cost segregation study.

Who Should Perform My Cost Segregation Study?

Construction engineers are the best choice to conduct an engineering cost segregation study. They are more likely to conduct a thorough review of your property that goes beyond assets that will experience short recovery period. This is known as the residual method, but an experienced engineer also will look at documents, such as building plans, architectural fees, and lease agreements (soft costs). After these items have been evaluated, the engineer can share her or his findings with a certified public accountant who will then present the study to the Internal Revenue Service for a full audit defense.

When Should a Cost Segregation Be Performed?

A cost segregation should be performed as soon as the commercial property is acquired. To maximize tax saving, the study should be performed in the first year that the property is built or acquired.

For more information about cost segregation and the type of savings you can expect, contact Tim Tikalsky at