Cost Segregation is a practical and legal means of increasing cash flow through accelerated depreciation of building costs.
The cost segregation process involves an initial survey to identify the costs and a subsequent study that helps building owners to write off their building in the shortest amount of time permissible under the law. This acceleration of depreciation minimizes tax liability, and increases cash flow, in the early years of a building’s life when cash is typically in short supply.
The purpose of a cost segregation study is to allocate costs to either real property or personal property, and to classify those costs in the most optimal MACRS asset lives as recognized under the Internal Revenue Code, tax rulings, and existing Tax Court case law.
Companies that utilize cost segregation studies significantly improve their return on investment (ROI).
Saving may include and/ or be due to the location of the property, the percentage of property containing built out internal space, the amount and type of personal property within the building and the amount and extent of site (land) improvements on the property.
The chart below reveals the average expected reallocation that various building types receive via a Cost Segregation Study.