Cost Segregation Studies

Any company which has built, renovated, or acquired a facility within the past 10 years likely has significant opportunity to improve cash flow and lower tax rates through an engineering-based cost segregation study. These studies “carve out” the personal property costs associated with a building project and reclassify them to the appropriate shorter tax life – often 5, 7 or 15 years instead of the 39 years used to depreciate real property.

The value of cost segregation studies has increased with the IRS’ release of the long-awaited final regulations (T.D. 9636) on Sept. 13, 2013, regarding the deductibility or required capitalization of maintenance, repair, and replacement costs for tangible property and the re-proposed regulations regarding partial dispositions of tangible property to receive additional current-year write-offs.

In addition to the potential accelerated depreciation benefits, cost segregation studies can provide the detailed analysis necessary to break out the multiple building systems and tangible property costs to help facilitate future capitalization versus expensing decisions, as well as the determination of values for dispositions.

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