Cost Segregation
A New Lease on Your Financial Life
Cost segregation is a tool for accelerating the return on capital from your real property investment. It can maximize your real property’s financial return by generating significant cash flow savings. Just about every taxpayer who owns developed real estate can benefit from cost segregation. This process lets you apply IRS procedural rules allowing you to increase annual after-tax cash flow through accelerated depreciation that you can apply now, going forward and going back all the way through 1987.
How Much Money Can Be Saved?
The actual amount of real savings and other benefits depends on the type of property and its specific construction expenditures. Most facilities can derive some benefits. An estimated after-tax savings of 5 percent of an asset’s depreciable basis can usually be realized annually over the first 10 years of the depreciable term, but after-tax savings as high as 15 percent for certain property types are not unusual.
When Do You Realize the Savings?
Your accounting professionals can determine when tax savings commence based on your filings and tax year. However, if you have owned the property for a while, the IRS now permits you to claim the catch-up depreciation. This is the depreciation that you could have claimed in each of the prior years you have owned the property had cost segregation been applied, all the way back through 1987. For the 2002 tax year this catch-up depreciation is recovered over a one-year period pursuant to a recent change in accordance with IRS Rev. Proc. 2002-19.
What Type of Properties are Good Cost Segregation Candidates?
Although every property type can provide specific tax-benefit opportunities through cost segregation, certain types of properties can usually benefit more than others due to the specific nature of their expenditures. Purpose and utilization are frequently determining factors. Generally, the more specialized and function-dedicated a property is, the greater the benefit derived from a cost-segregation re-classification to short-lived depreciable assets.
Manufacturing facilities, hotels and resorts, and corporate headquarter facilities, as well as high-end tenant improvements, are generally good candidates. However, properties with extensive site preparation work and personal property such as: big-box retailers, warehousing and distribution centers, self-storage facilities, and multi-family buildings are also excellent candidates for cost segregation depreciation benefits.
Alpern Rosenthal, one of Western Pennsylvania’s largest certified public accounting and business advising firms, has specialists who can assist you in realizing significant cash flow savings from:
- New buildings and facilities currently under construction
- Existing buildings undergoing renovation, remodeling, restoration or expansion
- Buildings placed in service as far back as 1987
- Leasehold improvements to offices and facilities
- Acquisitions or investments in real estate properties
- Our analysis will identify overlooked costs that may be segregated for accelerated depreciation.
Complete our online complimentary feasibility analysis and receive an estimate of the savings.
|