With increased tax rates and expired accelerated depreciation provisions, it’s not surprising that many business owners are looking for additional tax-savings opportunities. For those who own real property, a cost segregation study may provide some unexpected relief.

A cost segregation study is a one-time reclassification of longer-lived property (such as property with a depreciable life of 27.5 or 39 years) to shorter-lived property (such as a depreciable life of five, seven or 15 years). The study is usually performed by a third-party cost segregation provider. The actual process is relatively painless; a qualified professional walks through a property and reviews building plans, assesses the opportunities for reclassification, and provides a report with his or her findings.The cost for conducting the study can vary, depending on the size of building and scope of work, but your accounting team should be able to help you determine if the present value of the potential tax savings outweigh the study’s cost.

General characteristics of buildings that could make prime cost segregation targets include buildings:

• That cost more than $2 million,
• That were acquired in the past 10 years,
• With no/minimal depreciable basis classified as five, seven or 15-year property, and
• Whose owners can benefit from additional depreciation deductions.

Consult with your tax advisors to determine if this opportunity makes sense for your particular tax situation.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Mike McGivney at mmcgivney@cohencpa.com or a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.