Cost Segregation Studies

Cost segregation studies seek to identify construction or acquisition costs that qualify for shorter federal tax lives. Typically, construction costs are lumped together as real property and recovered evenly over a 39 or 40 year period. Identifying those cost components that can be recovered under an accelerated method over 5,7 or 15 years can have a significant positive impact on a company’s federal tax liability.

Candidates for a Cost Segregation Study

Any company planning to construct a new facility, expand an existing facility, or purchase an existing facility is a candidate for a cost segregation study. Cost segregation studies assure companies that they will realize all available tax benefits from accelerated depreciation deductions. These tax savings result in increased cash flow that can be used to underwrite current or future expansion.

Financial Benefits of a Cost Segregation Study:

The tax benefits of moving $100,000 of project costs from 39 years to a shorter depreciable life are illustrated below:

Additional Cost Segregation Study Benefits:

  1. Identifies any tax credit for which the project may qualify.
  2. Provides independent, third-party recommendations concerning the classification of construction properties for federal tax depreciation purposes.
  3. Ensures compliance with all federal tax requirements, such as the Uniform Capitalization Rules.
  4. Provides property classification required for financial statement purposes and/or local taxing authorities, plus the property breakdown required for fixed asset records.

Obtain more information by e-mailing Irene Fasano.