Cost Segregation is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. A Cost Segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Shorter life property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs.
Analysis of capital expenditures is used to determine appropriate asset classifications. Cost Segregation identifies building costs that would typically be depreciated over a 27.5, 31.5 or 39-year period and reclassifies them to permit a shorter, accelerated method of depreciation for certain building costs. Costs for non-structural elements, such as, carpet, accent lighting, portions of the electrical system, and exterior site improvements such as sidewalks and landscaping, can often be depreciated over five, seven or 15 years, rather than over 27.5, 31.5 or 39 years.
Cost segregation studies are ideally commenced during the design phase of a new construction project or directly following the close of an acquired property. Significant benefits can also be achieved for properties that were placed in service from past years. Were a cost segregation study not conducted by the current owner when it was initially placed into service, a change in accounting method can usually be employed, permitting formerly missed depreciation expenses to be deducted all in the current tax period. The result is an immediate, and often significant, catch-up deduction.
DC Consulting are Cost Segregation Specialists and provide Engineered Cost Segregation services to businesses with real estate investments. Our service is to help our clients find a better return on their investments, find more cash flows, and ultimately build a better business.
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