Cost Segregation Studies
COST SEGREGATION
Cost Segregation is a tax planning strategy to accelerate depreciation deductions, defer taxes and improve cash flow. Residential rental property is depreciated over a lengthy 27.5 years whereas commercial real estate is depreciated even longer over 39 years.
IRS rules allow non-building components such as personal property and land improvements to be segregated from the building and depreciated more rapidly, generally over 5, 7, and 15 years.
A Cost Segregation study can drastically improve cash flow by accelerating depreciation deductions, which offset taxable income. The study can typically generate cash savings between 2.5 to 10 percent of the building’s cost.
HOW IT WORKS
ICS can perform Cost Segregation studies without historical construction documents by applying the same cost estimation techniques and software used by construction professionals.
The benefits of a Cost Segregation study go beyond accelerating the timing of deductions. Taxpayers are allowed to write off and take losses on disposed building components. Cost Segregation carves out building components such that if a taxpayer where to replace the roof, upgrade the lights, or overhaul the HVAC system, the taxpayer can take a loss on the disposed components.
OUR SERVICE
ICS Tax provides free consultations and benefit estimates on all Cost Segregation studies. Our deliverables are consistent with the IRS Audit Techniques Guide and the standards of ASCSP (American Institute of Cost Segregation Professionals), a professional organization committed to the highest technical and ethical standards in the Cost Segregation industry. We provide free audit support and are proficient with Form 3115, Application for Change in Accounting Method. All Cost Segregation studies performed by ICS are certified by a team of ASCSP CCSP (Certified Cost Segregation Professionals), many of whom have served as ASCSP Officers and Directors.
PROPOSAL REQUEST
CASE STUDIES
- A manufacturer received a $450,000 benefit from a Cost Segregation of a factory building costing $2.5 million.
- An apartment complex with depreciable assets totaling $9 million received a benefit from depreciation acceleration totaling $300,000.
- The owner of an office building costing $10 million received a benefit of $400,000.
DEPRECIATION EXAMPLES
Examples of non-building components often depreciated over 27.5 or 39 years but are eligible for shorter recovery periods:
» Learn more about depreciation periods and asset class lives
| Building Type | Examples of Segregated Components |
Typical Reallocations |
| Apartment Buildings | Kitchen countertops and cabinetry, shelving, window blinds, removable floorcoverings, parking lots and walkways, pools and tennis courts. |
15-30% |
| Casinos | Electrical systems associated with particular machinery and equipment located within casino area, security monitoring systems to surveil gaming activities, decorative finishes. |
20-40% |
| Factories & Manufacturing Centers | Process-related plumbing and electrical systems, additional ventilation, fire protection systems dedicated to specific business operations. |
20-45% |
| Grocery Stores | Electrical systems dedicated to refrigeration and point of sale equipment, signage, music systems. |
15-40% |
| Hotels & Other Lodging | Decorative lighting such as wall sconces and chandeliers, removable flooring, window treatments, kitchen equipment, decorative millwork. |
15-40% |
| Office Buildings | Network cabling, raised floors and HVAC systems dedicated to IT equipment, uninterruptable power supply systems. |
10-25% |
| Restaurants | Kitchen cabinetry, exhaust hoods and kitchen ventilation, decorative items, drive-through equipment, electrical for televisions, plumbing and electrical systems dedicated to food preparation. |
20-40% |
| Retail Centers & Strip Malls | Merchandise lighting, electrical for point of sale equipment, security cameras, removable floor coverings, monument signs. |
15-40% |
| Warehouses | Truck turnarounds, loading ramps, parking lots, in-rack fire protection systems, pylons. |
10-20% |