Cost Segregation
Overview
Cost Segregation is the key to real estate tax savings.
A Cost Segregation Study (CSS) is an engineering-based forensic analysis of commercial or residential rental property. Study results support accelerated depreciation deductions and a variety of other tax strategies.
Purpose
The purpose of a cost segregation analysis is to move building assets into shorter-lived categories when possible, resulting in accelerated depreciation.
- Without a cost segregation analysis, commercial buildings are assigned a 39-year class life, while residential rental properties are assigned a slightly shorter 27.5-year life
- However, many assets within these properties can be assigned significantly shorter lives:
- 5-Year Class Life: Tangible Personal Property
- 15-Year Class Life: Land Improvements
- By “segregating” assets into shorter-lived categories, depreciation deductions are accelerated, taking advantage of the time value of money and decreasing tax burden
Candidates
Properties throughout the real estate life cycle can be excellent candidates for a cost segregation analysis, including:
- Newly constructed buildings
- Leasehold improvements/renovations
- Acquisitions of existing buildings
Ideally, it’s best to perform a study as soon as the property was constructed, acquired, or renovated. However, if that was not possible, a “look-back” study can be performed, allowing taxpayers to “go back in time” and capture depreciation that would otherwise have been lost.
A cost segregation analysis can be performed on virtually any type of real estate, though certain verticals make particularly good studies:
- Auto dealerships
- Manufacturing facilities
- Multifamily properties
- Self-storage facilities
Process
Boyer & Ritter’s CSS methodology complies with IRS regulations, and adheres to all procedures outlined in the IRS’ Cost Segregation Audit Techniques Guide:
- Information gathering
- Complimentary estimate of potential benefits
- Engineering site visit
- Cost identification and segregation (including indirect costs)
- Internal reviews to confirm tax and technical precision
- Delivery of thoroughly documented engineering report including photos, spreadsheets, graphical analysis, etc.
The site visit is a crucial part of a successful study. Boyer & Ritter engineers will carefully document every asset in your property, noting size, quantity, and type of asset as they take copious photographs. These notes – along with client-provided documents like site plans – are then used to carefully assign costs to each asset and segregate assets where possible.
Benefits
- Accelerated depreciation
- Increased cash flow
- Decreased tax burden
- Bonus depreciation
- Opportunity to benefit from a variety of other tax strategies
A cost segregation study provides the data required to support Tangible Property Analysis, Partial Asset Disposition, and several types of Energy-Efficiency Studies. Your Boyer & Ritter cost segregation consultant can help you identify other appropriate strategies to minimize your tax burden.
Choosing Boyer & Ritter
Boyer & Ritter has assisted clients in completing thousands of CSS projects. Our team's experience ranges from single-family homes to massive buildings, from the specialized research lab to the outdoor golf club.
This breadth of experience means that our professional team is familiar with every vertical, and can be sure to capture every asset that may be accelerated, maximizing tax savings on even the most complicated of properties.
Furthermore, in the unlikely event of an audit, the comprehensive, thoroughly documented Boyer & Ritter Cost Segregation Study often resolves IRS inquiries at the agent level.
Your Boyer & Ritter advisor will walk you through the study process every step of the way, helping you navigate real estate strategies to maximize tax savings.
179D Tax Deduction
179D Tax Deduction
The 179D Tax Deduction incentivizes energy-efficient construction of commercial buildings or residential rental buildings at least 4 stories above grade. Taxpayers who perform energy-efficient improvements to HVAC, lighting, and/or business envelope may be eligible to claim the Deduction.
The 179D Deduction makes a strategic complement to a Cost Segregation Study.
Energy-efficient improvements eligible for the 179D Deduction may not be accelerated in a Cost Segregation Study. Without a 179D Study, these assets would linger on the books, conferring no tax benefit. However, if Cost Segregation and 179D Studies are performed simultaneously, taxpayers can ensure that all assets are fully leveraged.
Boyer & Ritter offers an integrated suite of services and can easily incorporate 179D into a Cost Segregation Study.
