Cost Segregation

What Is Cost Segregation?

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Whether your business is constructing a new building, expanding an existing one, purchasing real estate, rehabilitating an old facility, or relocating with leasehold improvements, your property can generate significant federal tax credits and enhanced cash flow by utilizing cost segregation.

A cost segregation study is a study of all costs associated with the purchase or construction of a commercial building. The purpose of this study is to classify the acquisition/construction costs as either real or personal property, with the latter depreciated on an accelerated basis. These costs are then applied to the appropriate IRS tax credits.

Normally, these costs are assigned a 39-year depreciable life for tax purposes. However, through a cost segregation study, these costs may qualify for a 5, 7, or 15-year depreciable life. This results in a significant federal energy tax credit savings and improved cash flow. Wouldn’t this have a positive impact on your business’ bottom line.

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Benefits of Cost Segregation

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Based on the cost of the hotel and the improvements that were done,

a hotel owner was able to reclassify 29% of the hotel assets to short-lived assets and saved approximately $700,000 in taxes over a 5-year period.