Cost Segregation
Phone: 717-848-6777 | Fax: 717-845-5520 | Toll-Free: 1-866-680-6777
15 North Cherry Lane | York, PA 17401-5332
Cost Segregation Means Improved Cash Flow Cost segregation is a highly - beneficial and widely accepted tax planning strategy utilized by commercial real estate owners and tenants to accelerate depreciation deductions, defer tax, and improve cash flow. Properly used, Cost Segregation is fully-recognized and accepted by the IRS. Once used only by big-4 type accounting firms and the nation’s largest real estate owners, this practice has become routine for commercial property owners of almost every size.

A cost segregation study (CSS) is based on a detailed engineering analysis which is used to support the acceleration of depreciation deductions. This process identifies costs that can be allocated to shorter recovery periods of primarily 5, 7, and 15-year, as opposed to 27.5 (residential) or 39-year (commercial). A quality study provides the documentation needed to defer substantial tax payments and greatly improve cash flow. It is important to note that a cost segregation study does not create new deductions, but pushes existing deductions into the early years of ownership. This front-loading of depreciation allows the taxpayer to take advantage of the time value of money. On average, a cost segregation study can allocate 20% to 40% of the depreciable cost basis of a property to an accelerated recovery period. Occasionally, the allocation is much higher.

In its truest essence, cost segregation is a great tax planning tool. The best time to utilize it is when you are placing something into service, but it can work on capitalized assets as far back as 1987. Accelerated depreciation allows taxpayers to take advantage of the powerful time value of money concept. For every $100,000 moved from 39-year to 5-year property the taxpayer will realize approximately $25,000 of 10-year net present value savings. 10-yr NPV Savings On average, a cost segregation study will allocate 20 to 40% of a property’s depreciable cost basis to accelerated recovery periods and occasionally much more.

In addition cost segregation may provide for or assist with the following:

  Reduction of estimated quarterly tax payments
  Refund via NOL carryback
  Property tax savings
  Transfer tax savings

When prepared correctly, a cost segregation study can also be an excellent asset management tool used throughout the life of a real estate asset.