Cost Segregation

cost_segregationCost Segregation allows taxpayers to substantially increase their after-tax cash flow and defer federal and state income taxes, by accelerating depreciation expenses. Non-segregated residential real estate is depreciated over 27.5 years and a non-segregated commercial real estate is depreciated over 39 years. A cost segregation study will identify and reclassify the elements of the real estate. Some real estate elements have depreciation schedules of five, seven and 15 years, which are dramatically shorter than 27.5 and 39 years. Cost Segregation is one of the most significant tax reducing opportunities available in the real estate industry.

Federal Appraisal, LLC provides cost effective, USPAP-compliant cost segregation studies that are certified by MAI’s, ASA’s and that are conducted by professionals with engineering backgrounds.  

We recommend examining a company’s cost segregation program, whenever the company:

  • acquires real estate
  • builds a new asset
  • installs leasehold improvements
  • installs additions or expansions, or renovates an existing asset
  • discovers historical costs have not yet been segregated.

The Cost Benefit Test for Cost Segregation

  1. Can your organization benefit from sheltering income?
  2. Did your organization buy or build any facilities at a cost of more than $2,000,000, since 1986?
  3. Does your organization expect to hold the facilities for more than three years?

If you answered “yes” to these questions, then your organization will benefit from a professionally prepared cost segregation study.

Cost Segregation studies may provide other benefits, such as purchase price allocation, sales tax savings, lower property taxes, improved fixed asset records and registers

Cost segregation can be used for new and existing properties, and can be applied to both older or newly acquired holdings. The best time to apply cost segregation is when and assets are acquired or placed in service.

Cost segregation is complex because of the numerous depreciation classifications and the engineering and real estate expertise required to determine the appropriate classification.

In addition to providing Cost Segregation services for traditional investment and corporate real estate, Federal provides Cost Segregation services for special purpose properties, such as power generation facilities and manufacturing facilities.

See Business Valuation/Asset Type for more.

Posted in Accounting, Tax or Audit, Client Type