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What is Cost Segregation?
Cost Segregation is an IRS approved process used to redefine real estate assets that have been historically classified as real property (IRS Code Section 1250) on the business tax return. This process involves using an engineering based cost segregation study to reclassify the assets as personal property (IRS Code Section 1245) in order to accelerate the depreciation tax deductions. The result for the owner of the building is a substantial reduction in Federal and State income taxes.
The IRS guidelines allow certain assets on the 39 year depreciation schedule to be re-categorized into the 5, 7, or 15 year depreciation schedules. This reclassification is done through the basic "de-construction" of the building by a thorough engineering review of the blueprints, mechanical/electrical plans, and construction cost records. Once the theoretical "de-construction" of the building is completed, it is then "re-constructed" in several different cost categories that allow for various components to be placed in the shorter (more beneficial) depreciation categories of personal property.
Who Qualifies for a Cost Segregation Analysis?
Why do a Cost Segregation Study? The tax savings can be substantial. In a quote from the Journal of Accountancy, "Each $100,000 in assets reclassified form a 39-year life recovery period to a 5-year recovery period results in approximately $16,000 in net-present-value savings, assuming a 5% discount rate and a 35% marginal tax rate." See what else the Journal of Accountancy has to say about Cost Segregation:
Cost Segregation Applied (Journal of Accountancy 2004)
Money Doesn't Grow on Trees (Journal of Accountancy 2005)
Don't wait any longer to reduce your tax liability!!! Contact us today to get a quote for a Cost Segregation study: Clint A. Summers, CPA
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