Cost Segregation Services
Increase cash flow by accelerating depreciation benefits!
If you’ve constructed a new facility, acquired an existing facility, performed construction leasehold improvements, or renovated an existing facility you may be paying too much federal income tax. Richards, Witt and Charles, in collaboration with SourceHOV|Tax, provides cost segregation studies to help our clients increase cash flow by accelerating depreciation expense deductions.
Performing a Cost Segregation Study:
A cost segregation study may be conducted on any building that has been placed in service since December 31, 1986, by a tax paying company that does not show an operating loss or will be profitable in the near future. Good cost segregation opportunities include:
- New construction and renovations
- Acquisitions of property
- Buildings previously placed in service without a cost segregation study that are currently depreciating entirely over 27.5 or 39 years
Cost Seg Process:
Cost segregation reclassifies the components of a building into shorter class lives. For example, a building’s floor, roof and walls might be classified as 39-year real property; site improvements such as sidewalks and landscaping would be classified as 15-year real property; communications equipment and general office furnishings as 7-year tangible personal property; and carpeting, decorative lighting and computer associated items as 5-year personal property.*
Benefits of Cost Segregation:
The benefits of a cost segregation study, resulting from a deferral of tax payment and accelerated depreciation, are easy to demonstrate. For each dollar that is reclassified into a 7-year class life, the taxpayer realizes from $ 0.15 to more than $0.20 in the cumulative present value of taxes deferred. Similarly, for each dollar that is reclassified into a 5-year class life, the taxpayer realizes from $.19 to more than $.23. The exact amounts depend on factors such as the tax rate, discount rate and whether the subject property qualifies for bonus depreciation. In many years, bonus depreciation applies, further increasing the benefit.
The New Final Tangible Property Regulations:
The repairs and dispositions aspect of the new final tangible property regulations (PDF download) released in late 2013 can significantly enhance the benefit of a traditional cost segregation study. These new tax updates are complex and entail the most comprehensive changes to the issues of capitalization and write-offs in 20 years. The SourceHOV|Tax cost segregation team includes one of the leading authorities on the new regulations.
SourceHOV|Tax is a leading provider of specialized tax services including cost segregation, R&D tax credit studies, LIFO accounting and §179D tax deductions.
*according to MACRS (the Modified Accelerated Cost Recovery System), case law and IRS revenue rulings. MACRS property is tangible, depreciable property as prescribed by the Tax Reform Act of 1986.